UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to _____.
Commission file number:
HG HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
| | | |||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||
(Address of principal executive offices, Zip Code)
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Smaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes
As of August 14, 2023,
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
HG HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Investments | ||||||||
| Accounts receivables | ||||||||
| Interest and dividend receivables | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Lease assets | ||||||||
| Investment in affiliate | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued salaries, wages and benefits | ||||||||
| Lease liabilities, current portion | ||||||||
| Escrow liabilities | ||||||||
| Other accrued expenses | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Reserve for title claims | ||||||||
| Unearned premiums | ||||||||
| Lease liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common stock, $ par value, shares authorized and and shares issued and outstanding, respectively | ||||||||
| Capital in excess of par value | ||||||||
| Retained earnings | ||||||||
| Total stockholders’ equity | ||||||||
| Noncontrolling interests | ||||||||
| Total equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
HG HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
| Three Months |
Six Months |
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| Ended |
Ended |
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| June 30, |
June 30, |
June 30, |
June 30, |
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| 2023 |
2022 |
2023 |
2022 |
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| Revenues: |
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| Net premiums written |
$ | $ | $ | $ | ||||||||||||
| Escrow and other title fees |
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| Management fees |
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| Total revenues |
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| Cost of revenues: |
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| Underwriting expenses |
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| Provision for title claim losses |
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| Search and other fees |
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| Total operating expenses |
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| Gross underwriting profit |
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| Operating expenses: |
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| General and administrative expenses |
( |
) |
( |
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( |
) |
( |
) |
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| Other income/expenses: |
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| Interest income |
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| Dividend income |
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| Other income |
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| Gain on sale of assets |
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| Gain (loss) from affiliate |
( |
) |
( |
) |
( |
) |
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| Loss on impairment |
( |
) |
( |
) |
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| Income (loss) from operations before income taxes |
( |
) |
( |
) |
( |
) |
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| Income tax expense |
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| Net income (loss) |
$ | $ | ( |
) |
$ | ( |
) |
$ | ( |
) |
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| Net loss attributable to noncontrolling interests |
( |
) |
( |
) |
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| Net income (loss) after noncontrolling interests |
$ | $ | ( |
) |
$ | ( |
) |
$ | ( |
) |
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| Basic and diluted loss per share: |
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| Net income (loss) – basic |
$ | $ | (. |
) |
$ | (. |
) |
$ | (. |
) |
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| Net income (loss) – diluted |
$ | $ | (. |
) |
$ | (. |
) |
$ | (. |
) |
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| Weighted average shares outstanding: |
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| Basic |
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| Diluted |
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The accompanying notes are an integral part of the consolidated financial statements.
HG HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| For the Six Months Ended June 30, |
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| 2023 |
2022 |
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| Net loss after noncontrolling interests |
$ | ( |
) | $ | ( |
) | ||
| Net loss attributable to noncontrolling interests |
( |
) | ||||||
| Net loss from operations |
( |
) | ( |
) | ||||
| Adjustments to reconcile net loss from operations to net cash flows from operating activities: |
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| Depreciation expense |
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| Amortization expense |
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| Stock compensation expense |
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| Dividends on HC Realty common stock |
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| Loss from affiliate |
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| Gain on sale of assets |
( |
) | ||||||
| Impairment loss on subordinated notes receivable |
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| Changes in assets and liabilities: |
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| Prepaid expenses and other current assets |
( |
) | ( |
) | ||||
| Accounts receivable |
( |
) | ( |
) | ||||
| Deferred tax assets and other assets |
( |
) | ||||||
| Accounts payable |
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| Accrued salaries, wages, and benefits |
( |
) | ||||||
| Unearned premium reserve |
( |
) | ||||||
| Escrow liabilities |
( |
) | ||||||
| Reserve for title claims |
( |
) | ||||||
| Other accrued expenses |
( |
) | ( |
) | ||||
| Other long-term liabilities |
( |
) | ( |
) | ||||
| Net cash provided by (used in) operations |
( |
) | ||||||
| Cash flows from investing activities: |
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| Purchase of property, plant, and equipment |
( |
) | ( |
) | ||||
| Purchase of investments |
( |
) | ||||||
| Proceeds from sale of assets |
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| Proceeds from sale of investments |
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| Net cash provided by (used in) investing activities |
( |
) | ||||||
| Cash flows from financing activities: |
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| Repurchase of shares of common stock |
( |
) | ||||||
| Net cash used in financing activities |
( |
) | ||||||
| Net increase (decrease) in cash and restricted cash |
( |
) | ||||||
| Cash and restricted cash at beginning of period |
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| Cash and restricted cash at end of period |
$ | $ | ||||||
| Cash |
$ | $ | ||||||
| Restricted cash |
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| Cash and restricted cash |
$ | $ | ||||||
| Supplemental Non-Cash Disclosures: |
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| Dividends on investment in affiliate |
$ | $ | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
HG HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| 1. | Preparation of Interim Unaudited Financial Statements |
The consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of the Company (as defined below), these statements include all adjustments necessary for a fair presentation of the results of all interim periods reported herein. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been either condensed or omitted pursuant to SEC rules and regulations. However, the Company believes that the disclosures made are adequate for a fair presentation of results of operations and financial position. Operating results for the interim periods reported herein may not be indicative of the results expected for the year. These consolidated financial statements should be read in conjunction with the financial statements and accompanying notes included in the Company’s latest Annual Report on Form 10-K filed with the SEC on March 30, 2023.
HG Holdings, Inc., together with its consolidated subsidiaries (the “Company,” “we,” ‘us” or “our”), operates through its wholly owned subsidiaries, National Consumer Title Insurance Company (“NCTIC”), National Consumer Title Group, LLC (“NCTG”), Title Agency Ventures, LLC (“TAV”), HG Managing Agency, LLC (“HGMA”), and Omega National Title Agency, LLC (“Omega”), and through an affiliated investment in HC Government Realty Trust, Inc., a Maryland corporation (“HC Realty”).
Description of the Business
Title Insurance
The Company engages in issuing title insurance through its subsidiary, NCTIC, and providing title agency services through its subsidiaries, NCTG, TAV, and Omega. Through NCTIC, the Company underwrites land title insurance for owners and mortgagees as the primary insurer. The Company currently only provides title insurance services in the state of Florida.
Title insurance protects against loss or damage resulting from title defects that affect real property. When real property is conveyed from one party to another, occasionally there is an undisclosed defect in the title or a mistake or omission in a prior deed, will or mortgage that may give a third party a legal claim against such property. If a covered claim is made against real property, title insurance provides indemnification against insured defects. There are two basic types of title insurance policies – one for the mortgage lender and one for the real property owner. A lender often requires the property owner to purchase a lender’s title insurance policy to protect its position as a holder of a mortgage loan, but the lender’s title insurance policy does not protect the property owner. The property owner has to purchase a separate owner’s title insurance policy to protect its investment.
NCTIC issues title insurance policies in Florida through its home office and through a network of affiliated and independent title agents. In the State of Florida, issuing agents are independent agents or subsidiaries of community and regional mortgage lending institutions, depending on local customs and regulations. The ability to attract and retain issuing agents is a key determinant of the Company’s growth in title insurance premiums written.
Revenues for the title insurance segment primarily result from purchases of new and existing residential and commercial real estate, refinance activity and certain other types of mortgage lending such as home equity lines of credit. Title insurance premiums vary from state to state and are subject to extensive regulation. Statutes generally provide that rates must not be excessive, inadequate or unfairly discriminatory. The process of implementing a rate change in most states involves pre-approval by the applicable state insurance regulator.
Volume is a factor in the Company’s title insurance operation’s profitability due to fixed operating costs that are incurred regardless of title insurance premium volume. The resulting operating leverage tends to amplify the impact of changes in volume on profitability. The Company’s title insurance profitability also depends, in part, upon its ability to manage its investment portfolio to maximize investment returns and to minimize risks such as interest rate changes, defaults and impairments of assets.
The Company’s volume of title insurance premiums is affected by the overall level of residential and commercial real estate activity, which includes property sales, mortgage financing and mortgage refinancing. Real estate activity, home sales and mortgage lending are cyclical in nature. Real estate activity is affected by a number of factors, including the availability of mortgage credit, the cost of real estate, consumer confidence, employment and family income levels, and general United States economic conditions. Interest rate volatility is also an important factor in the level of residential and commercial real estate activity.
The Company’s title insurance premiums in future periods are likely to fluctuate due to these and other factors which are beyond management’s control.
Historically, the title insurance business tends to be seasonal as well as cyclical. Because home sales are typically strongest in periods of favorable weather, the first calendar quarter tends to have the lowest activity levels, while the spring and summer months tend to be more active. Mortgage refinance activity tends to be influenced less by seasonality and more by economic cycles, with activity levels increasing during times of falling interest rates.
Real Estate Related
The Company engages in rental real estate through its equity investment in HC Realty. HC Realty is an internally-managed real estate investment trust (“REIT”) focused on acquiring, developing, financing, owning and managing build-to-suit or renovate-to-suit, single-tenant properties leased primarily to the U.S. government and administered by the U.S. General Services Administration or directly by the federal government agencies or sub-agencies occupying such properties (referred to as “Government Properties”). HC Realty invests primarily in Government Properties ranging from
The Company currently owns
As of June 30, 2023, HC Realty owned
Reinsurance Related
The Company, through the formation of White Rock USA Cell 47, previously engaged in providing another insurance company excess-of-loss reinsurance coverage related to catastrophic weather risk in Texas. The Company does currently have any reinsurance contracts in-force during the six month period ended June 30, 2023; however, the Company may actively look to provide reinsurance coverage to other carriers as future opportunities arise.
Management Advisory Services Related
The Company, through its wholly-owned subsidiary HGMA, engages in providing management advisory services including formation, operational, and restructuring services.
Effective April 1, 2023, the Company, through HGMA, engages in providing management advisory services to a related captive managing general agency regarding its anticipated assumption of policies from Citizens Property Insurance Company. The services include underwriting, modeling, and advising on the subset of potential policies selected for the proposed assumption. The engagement is for six months from the effective date of the agreement at a monthly fee of $
Effective April 1, 2023, the Company, through HGMA, engages in providing management advisory services to a related reinsurance intermediary. The services include legal formation, licensure, regulatory approval, and other general operational services to allow the intermediary to adequately perform its business functions. The engagement is for twelve months from the effective date of the agreement at a monthly fee of $
For information about our reportable segments, refer to Note 9 Segment Information.
Developments Impacting Comparison of the Three- and Six-Month Periods ended June 30, 2023 and 2022
Effective August 1, 2022, Omega acquired substantially all the assets of Omega Title Florida, LLC (“OTF”). In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, the Company has determined that the transaction should be accounted for as a business combination. The acquisition allows Omega to expand into additional geographic areas of Florida and expand its footprint.
For information about our business combinations, refer to Note 12 Business Combinations.
Recent Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments in ASU 2016-13 require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendment is effective for public entities for annual reporting periods beginning after December 15, 2022. Early application is permitted for reporting periods beginning after December 15, 2018, although the Company has not opted to do so. The Company has adopted ASU 2016-13 with no related impact to the consolidated financial statements.
| 2. | Subordinated Notes Receivable |
The Company received a $
S&L Note
The S&L Note had a principal amount of $
As a result of the Company’s recording of impairment losses in prior quarters, based on current information and events, including the impact of COVID-19 on S&L’s business and its customers, the Company fully impaired the S&L Note as of December 31, 2022. Upon maturity on March 2, 2023, S&L informed the Company that it will not be able to pay the Company any amounts outstanding including principal or interest due. Any future recoveries from S&L, if any, will be recognized as Other Income on the Company’s Unaudited Consolidated Statements of Operations when the recoveries are recognized.
| 3. | Investment in Affiliate |
The HC Series B Stock is not deemed to be in-substance common stock and is accounted for using the measurement alternative for equity investments with no readily determinable fair value. The HC Series B Stock will be reported at cost, adjusted for impairments or any observable price changes in ordinary transactions with identical or similar investments issued by HC Realty.
The following table summarizes the Company’s investment in HC Realty as of June 30, 2023, and December 31, 2022 (in thousands):
| Ownership % | Investment in Affiliate Balance | Gain (loss) recorded in the Statements of Operations (b) | ||||||||||||||||||||||||||||||
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| June 30, 2023 | December 31, 2022 | June 30, 2023 | December 31, 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
| HC Series B Stock (a) | % | % | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| HC Common Stock | % | % | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Total | % | % | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| (a) | Represents investments in shares of HC Series B Stock with a basis of $ |
| (b) | Gain (loss) from these investments is included in “Gain (loss) from affiliate” in the Unaudited Consolidated Statements of Operations. Since HC Realty is a REIT and not a taxable entity, the loss is not reported net of taxes. |
The Company’s investment in HC Common Stock is accounted for under the equity method of accounting.
| 4. | Investments |
The following table details investments by major investment category, at June 30, 2023 (in thousands):
| Cost or Adjusted/ Amortized Costs | Gross Unrealized Gains | Gross Unrealized Losses | Total | |||||||||||||
| U.S. government and agency securities, held-to-maturity | $ | $ | $ | $ | ||||||||||||
| Investments in limited partnership | ||||||||||||||||
| Common stock | ||||||||||||||||
| Total investments | $ | $ | $ | $ | ||||||||||||
The following table details investments by major investment category, at December 31, 2022 (in thousands):
| Cost or Adjusted/ Amortized Costs | Gross Unrealized Gains | Gross Unrealized Losses | Total | |||||||||||||
| U.S. government and agency securities, held-to-maturity | $ | $ | $ | $ | ||||||||||||
| Investments in limited partnership | ||||||||||||||||
| Common stock | ||||||||||||||||
| Total investments | $ | $ | $ | $ | ||||||||||||
The table below summarizes our fixed maturities at June 30, 2023 (dollars in thousands) by contractual maturity periods. Actual results may differ as issuers may have the right to call or prepay obligations, with or without penalties, prior to the contractual maturities of those obligations.
| Cost or Amortized Cost | Percent of Total | Fair Value | Percent of Total | |||||||||||||
| Due in one year or less | $ | % | $ | % | ||||||||||||
| Due after one year through five years | ||||||||||||||||
| Due after five years through ten years | ||||||||||||||||
| Due after ten years | ||||||||||||||||
| Total | $ | % | $ | % | ||||||||||||
Fair value measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on our Unaudited Consolidated Balance Sheets at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows:
Level 1: Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we can access.
Level 2: Assets and liabilities whose values are based on the following:
| a. | Quoted prices for similar assets or liabilities in active markets; |
| b. | Quoted prices for identical or similar assets or liabilities in markets that are not active; or |
| c. | Valuation models whose inputs are observable, directly, or indirectly, for substantially the full term of the asset or liability. |
Level 3: Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect our estimates of the assumptions that market participants would use in valuing the assets and liabilities.
We estimate the fair value of our investments using the closing prices on the last business day of the reporting period, obtained from active markets such as the New York Stock Exchange, Nasdaq and NYSE American. For securities for which quoted prices in active markets are unavailable, we use a third-party pricing service that utilizes quoted prices in active markets for similar instruments, benchmark interest rates, broker quotes and other relevant inputs to estimate the fair value of those securities for which quoted prices are unavailable. Our estimates of fair value reflect the interest rate environment that existed as of the close of business on June 30, 2023. Changes in interest rates subsequent to June 30, 2023 may affect the fair value of our investments.
The fair value of our fixed maturities is initially calculated by a third-party pricing service. Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of proprietary models, produce valuation information in the form of a single fair value for individual fixed-income and other securities for which a fair value has been requested. The inputs used by the valuation service providers include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, liquidity spreads, currency rates and other information, as applicable. Credit and liquidity spreads are typically implied from completed transactions and transactions of comparable securities. Valuation service providers also use proprietary discounted cash flow models that are widely accepted in the financial services industry and similar to those used by other market participants to value the same financial information. The valuation models take into account, among other things, market observable information as of the measurement date, as described above, as well as the specific attributes of the security being valued, including its term, interest rate, credit rating, industry sector and, where applicable, collateral quality and other issue or issuer specific information. Executing valuation models effectively requires seasoned professional judgment and experience.
All fixed-income securities are classified as held-to-maturity and are reported at amortized cost as of June 30, 2023 and December 31, 2022. The Company performs ongoing impairment evaluations, and we did record any other then temporary impairments during the three or six months ended June 30, 2023 and 2022.
The Company’s other investments include investments in limited partnerships whose purpose is to invest capital in various growth-oriented enterprises. The Company does not have significant influence over any investee and the Company’s investment typically represents less than 5% of the investee’s ownership. These investments do not meet the criteria of accounting under the equity method.
The following table presents the fair value of our financial instruments measured on a recurring basis by level at June 30, 2023 (in thousands):
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Common stock | $ | $ | $ | $ | ||||||||||||
| Investments in limited partnership | ||||||||||||||||
| Investments, at fair value | ||||||||||||||||
| U.S. government and agency securities, held-to-maturity | ||||||||||||||||
| Total investments | $ | $ | $ | $ | ||||||||||||
The following table presents the fair value of our financial instruments measured on a recurring basis by level at December 31, 2022 (in thousands):
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Common stock | $ | $ | $ | $ | ||||||||||||
| Investments in limited partnership | ||||||||||||||||
| Investments, at fair value | ||||||||||||||||
| U.S. government and agency securities, held-to-maturity | ||||||||||||||||
| Total investments | $ | $ | $ | $ | ||||||||||||
The following table presents selected information regarding Level 3 assets and liabilities measured at fair value on a recurring basis during the six month period ended June 30, 2023 (in thousands):
| Investment in Common Stock | Investment in Limited Partnership | Total | ||||||||||
| Beginning balance | $ | $ | $ | |||||||||
| Purchases | ||||||||||||
| Total investments | $ | $ | $ | |||||||||
The following table presents selected information regarding Level 3 assets and liabilities measured at fair value on a recurring basis during the year ended December 31, 2022 (in thousands):
| Investment in Common Stock | Investment in Limited Partnership | Total | ||||||||||
| Purchases | $ | $ | $ | |||||||||
| Total investments | $ | $ | $ | |||||||||
| 5. | Reserve for Title Claims |
NCTIC’s reserves for unpaid losses and loss adjustment expenses are established using estimated amounts required to settle claims for which notice has been received (reported) and the amount estimated to be required to satisfy claims that have been incurred but not yet reported (“IBNR”). Despite the variability of such estimates, management believes that the total reserve for claims is adequate to cover claim losses which might result from pending and future claims under title insurance policies issued through June 30, 2023. We continually update loss reserve estimates as new information becomes known, new loss patterns emerge or as other contributing factors are considered and incorporated into the analysis of reserve for claim losses. Due to the uncertainty inherent in the process and to the judgment used by management, the ultimate liability may be greater or less than our current reserves. If actual claims loss development varies from what is currently expected and is not offset by other factors, it is possible that additional reserve adjustments may be required in future periods in order to maintain our recorded reserve within a reasonable range of our actuary's central estimate.
A reconciliation of the activity in the reserves account for the six month period ended June 30, 2023 and 2022 is as follows (in thousands):
| For the Six Months Ended | For the Six Months Ended | |||||||
| June 30, 2023 | June 30, 2022 | |||||||
| Beginning Reserves | $ | $ | ||||||
| Provision for claims related to: | ||||||||
| Current year | ||||||||
| Prior years | ||||||||
| Total provision for claim losses | ||||||||
| Claims paid related to: | ||||||||
| Current year | ( | ) | ||||||
| Prior years | ||||||||
| Total title claims paid | ( | ) | ||||||
| Ending Reserves | $ | $ | ||||||
At June 30, 2023, there were
For the six months ended June 30, 2023, there was no development of the net provision for claims attributable to insured events of the prior year as a result of estimation of the reserve for claims. Original estimates are decreased or increased as additional information becomes known regarding individual claims.
A summary of the Company’s loss reserves at June 30, 2023 and December 31, 2022 are as follows (in thousands):
| As of June 30, 2023 | As of December 31, 2022 | |||||||
| Known title claims | $ | $ | ||||||
| IBNR title claims | ||||||||
| Total title claims | ||||||||
| Non-title claims | ||||||||
| Total title claims reserves | $ | $ | ||||||
| 6. | Reinsurance |
Certain premiums and benefits at NCTIC are ceded to other insurance companies under various reinsurance agreements. The reinsurance agreements provide NCTIC with increased capacity to write more risk and maintain its exposure to loss within its capital resources. For the six month period ended June 30, 2023, NCTIC's reinsurance program consisted of excess of loss reinsurance treaties. The following is a summary of the reinsurance coverage.
Effective January 1, 2023, NCTIC entered into a per risk excess of loss reinsurance agreement that provides coverage of $
Effective January 1, 2022, NCTIC entered into a reinstatement premium protection reinsurance agreement to reinsure the reinstatement premium payment obligations of NCTIC under the shared per risk excess of loss agreement. The coverage was limited to
NCTIC’s reinsured risks are treated, to the extent of reinsurance, as though they are risks for which the Company is not liable. However, NCTIC remains contingently liable in the event the reinsuring companies do not meet their obligations under these reinsurance contracts. NCTIC uses a broker to place its reinsurance through Lloyd’s syndicates, a group of underwriters who work together to provide insurance coverage for a variety of risks. Chaucer Ltd (“Chaucer”) and Beazley Syndicate (“Beazley”) are each
The effects of reinsurance on premiums written and earned at NCTIC are as follows:
| Three Months | Six Months | |||||||||||||||
| Ended | Ended | |||||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Direct title premiums | $ | $ | $ | $ | ||||||||||||
| Ceded title premiums | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net title premiums | $ | $ | $ | $ | ||||||||||||
| 7. | Statutory Reporting |
NCTIC's assets, liabilities, and results of operations have been reported in accordance with GAAP, which varies from statutory accounting practices (“SAP”) prescribed or permitted by insurance regulatory authorities. Prescribed SAP are found in a variety of publications of the National Association of Insurance Commissioners (“NAIC”), state laws and regulations, as well as through general practices. The principal differences between SAP and GAAP are that under SAP: (1) certain assets that are not admitted assets are eliminated from the balance sheet, (2) a supplemental reserve for claims is charged directly to unassigned surplus rather than provision for claims under GAAP, and (3) differences may arise in the computation of deferred income taxes. The Company must file with applicable state insurance regulatory authorities an “Annual Statement” which reports, among other items, net income (loss) and stockholders' equity (called “surplus as regards policyholders” in statutory reporting).
| 8. | Segment Information |
The Company has reportable segments, title insurance services, reinsurance, management services, and real estate. The remaining immaterial segments have been combined into a group called “Corporate and Other.” The title insurance segment issues title insurance policies, which insures titles to real estate, and provides title agency services for residential and commercial real estate transactions. The real estate segment, through an affiliate investment in HC Realty, owns and operates a portfolio of single-tenant properties leased primarily to the U.S. government and administered by the U.S. General Services Administration or directly by the federal government agencies or sub-agencies occupying such properties.
Provided below is selected financial information about the Company’s operations by segment for the six months ended June 30, 2023 (in thousands):
| Title Insurance | Real Estate Related | Reinsurance Related | Management Services Related | Corporate and Other | Total | |||||||||||||||||||
| Insurance and other services revenue | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Cost of revenues | ( | ) | ( | ) | ||||||||||||||||||||
| Gross profit | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Operating expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Other income and expenses | ||||||||||||||||||||||||
| (Loss) income before income taxes | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Total assets | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Provided below is selected financial information about the Company’s operations by segment for the six months ended June 30, 2022 (in thousands):
| Title Insurance | Real Estate Related | Reinsurance Related | Management Services Related | Corporate and Other | Total | |||||||||||||||||||
| Insurance and other services revenue | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Cost of revenues | ( | ) | ( | ) | ||||||||||||||||||||
| Gross profit | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Operating expenses | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Other income and expenses | ( | ) | ||||||||||||||||||||||
| (Loss) income before income taxes | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Total assets | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Provided below is selected financial information about the Company’s operations by segment for the three months ended June 30, 2023 (in thousands):
| Title Insurance | Real Estate Related | Reinsurance Related | Management Services Related | Corporate and Other | Total | |||||||||||||||||||
| Insurance and other services revenue | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Cost of revenues | ( | ) | ( | ) | ||||||||||||||||||||
| Gross profit | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Operating expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Other income and expenses | ||||||||||||||||||||||||
| (Loss) income before income taxes | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Total assets | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Provided below is selected financial information about the Company’s operations by segment for the three months ended June 30, 2022 (in thousands):
| Title Insurance | Real Estate Related | Reinsurance Related | Management Services Related | Corporate and Other | Total | ||||||||||||||||||
| Insurance and other services revenue | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| Cost of revenues | ( | ) | ( | ) | |||||||||||||||||||
| Gross profit | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| Operating expenses | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| Other income and expenses | ( | ) | |||||||||||||||||||||
| (Loss) income before income taxes | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||
| Total assets | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| 9. | Income taxes |
During the six months ended June 30, 2023, the Company recorded a non-cash credit to its valuation allowance of $
The Company maintains a valuation allowance against deferred tax assets that currently exceed our deferred tax liabilities. The primary assets covered by this valuation allowance are net operating loss carry-forwards. The valuation allowance was calculated in accordance with the provisions of ASC 740, Income Taxes, which requires an assessment of both positive and negative evidence when measuring the need for a valuation allowance. The Company’s results over the most recent four-year period were heavily affected by business restructuring activities. The Company’s cumulative loss represented sufficient negative evidence to require a valuation allowance. The Company intends to maintain a valuation allowance until sufficient positive evidence exists to support its reversal, resulting in no deferred tax asset balance being recognized. Should the Company determine that it will not be able to realize all or part of its deferred tax asset in the future, an adjustment to the deferred tax asset will be charged to income in the period such determination is made.
As of June 30, 2023, the Company has
Our effective tax rate for the three and six month periods ended June 30, 2023 was effectively
| 10. | Stockholders’ Equity |
Basic earnings per common share are based upon the weighted average shares outstanding. Outstanding stock options and restricted stock are treated as potential common stock for purposes of computing diluted earnings per share. Basic and diluted earnings per share are calculated using the following share data (in thousands):
| Three Months | Six Months | |||||||||||||||
| Ended | Ended | |||||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Weighted average shares outstanding for basic calculation | ||||||||||||||||
| Add: Effect of dilutive stock awards | ||||||||||||||||
| Weighted average shares outstanding, adjusted for diluted calculation | ||||||||||||||||
For the three and six month periods ended June 30, 2023 and 2022, there were no stock options or restricted stock awards outstanding.
On August 5, 2022, the Company’s board of directors (the “Board”) authorized the repurchase of up to $
During the six months ended June 30, 2023, the Company repurchased
During the three months ended June 30, 2023, the Company repurchased
A reconciliation of the activity in Stockholders’ Equity accounts for the three and six months ended June 30, 2023, is as follows (in thousands):
| Common | Capital in Excess of | Retained | Noncontrolling | |||||||||||||
| Stock | Par Value | Earnings | Interest | |||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | $ | ||||||||||||
| Shares repurchased | ( | ) | ||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ||||||||||||
| Shares repurchased | ( | ) | ||||||||||||||
| Net income (loss) | ( | ) | ||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ||||||||||||
A reconciliation of the activity in Stockholders’ Equity accounts for the three and six months ended June 30, 2022, is as follows (in thousands):
| Common | Capital in Excess of | Retained | Noncontrolling | |||||||||||||
| Stock | Par Value | Deficit | Interest | |||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||
| Stock-based compensation expense | ||||||||||||||||
| Net loss | ( | ) | ||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||
| Stock-based compensation expense | ||||||||||||||||
| Net loss | ( | ) | ||||||||||||||
| Balance at June 30, 2022 | $ | $ | ( | ) | $ | |||||||||||
| 11. | Leases |
Right-of-use assets and lease liabilities related to operating leases under ASC Topic 842, Leases (“ASC Topic 842”), are recorded when the Company and its subsidiaries are party to a contract, which conveys the right for it to control an asset for a specified period of time. Substantially all of our operating lease arrangements relate to rented office space and real estate for our title operations. We generally are not a party to any material contracts considered finance leases. Right-of-use assets and lease liabilities under ASC Topic 842 are recorded as Lease assets and Lease liabilities, respectively, on the Unaudited Consolidated Balance Sheets.
Our operating leases range in term from to years. As of June 30, 2023, the weighted-average remaining lease term of our operating leases was
Our lease agreements do not contain material variable lease payments, buyout options, residual value guarantees or restrictive covenants.
Most of our leases include one or more options to renew, with renewal terms that can extend the lease term by varying amounts. The exercise of lease renewal options is at our sole discretion. We do not include options to renew in our measurement of lease assets and lease liabilities as they are not considered reasonably assured of exercise.
The lease liability is determined by discounting future lease payments using a discount rate based on our incremental borrowing rate for similar collateralized borrowing. The discount rate is calculated using estimates of capitalization rates and borrowing rates. As of June 30, 2023, the weighted-average discount rate used to determine our operating lease liability was
Lease expense included in general and administrative expenses on the Unaudited Consolidated Statements of Operations was $
Future payments under operating lease arrangements accounted for under ASC Topic 842 for each twelve month period following June 30, 2023 are as follows (in thousands):
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total lease payments, undiscounted | $ | |||
| Less: present value discount | ( | ) | ||
| Lease liabilities, at present value | $ |
| 12. | Revenue from Contracts with Customers |
ASC 606, Revenue from Contracts with Customers, requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance does not apply to revenue associated with insurance contracts (including title insurance policies), financial instruments and lease contracts; and therefore, is primarily applicable to the following Company revenue categories.
Escrow and other title-related fees – The Company’s title insurance segment recognizes commission revenue and fees related to items such as searches, settlements, commitments, and other ancillary services. Escrow and other title-related fees are recognized as revenue at the time of the related transactions as the earnings process, or performance obligation, is then considered to be complete.
Non-title services –All non-title service fees, such as management fees, are recognized as revenue as performance obligations are completed.
| 13. | Business Combinations |
Effective August 1, 2022, Omega acquired substantially all the assets of OTF. In accordance with ASC Topic 805, the Company has determined that the transaction should be accounted for as a business combination. The assets of OTF at the date of acquisition were as follows (in thousands):
| Title files in progress | $ | |||
| Property, plant, and equipment | ||||
| Noncompetition agreement | ||||
| Total assets acquired | $ |
The purchase price paid by Omega for the assets of OTF were as follows (in thousands):
| Cash paid | $ | |||
| Noncontrolling interest in Omega | ||||
| Total consideration paid | $ | |||
| Title files in progress | $ | |||
| Fixed assets | ||||
| Noncompetition agreement | ||||
| Total assets acquired | ||||
| Goodwill | $ |
The fair value of assets acquired and liabilities assumed represent the final allocation.
The following table presents the unaudited pro forma financial information as if OTF had been included in the Company’s financial results as of January 1, 2022, through the date of acquisition (in thousands):
| Three Months | Six Months | |||||||
| Ended | Ended | |||||||
| June 30, | June 30, | |||||||
| 2022 | 2022 | |||||||
| Revenues | $ | $ | ||||||
| Net income | $ | ( | ) | $ | ( | ) | ||
| 14. | Goodwill and Intangible Assets |
Goodwill
As of June 30, 2023, the Company recognized $
Intangible Assets
The following is a summary of intangible assets excluding goodwill recorded as intangible assets on our Unaudited Consolidated Balance Sheets (in thousands):
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Intangible assets subject to amortization | $ | $ | ||||||
| Total | $ | $ | ||||||
Intangible assets subject to amortization consisted of the following as of June 30, 2023 (dollars in thousands):
| Weighted-average remaining amortization period (in years) | Gross carrying amount | Accumulated amortization | Net carrying amount | |||||||||||||
| Noncompetition agreement | $ | $ | ( | ) | $ | |||||||||||
| Total | $ | $ | ( | ) | $ | |||||||||||
No impairment in the value of amortizing intangible assets was recognized during the three or six months ended June 30, 2023.
Amortization expense of our intangible assets for the three and six month periods ended June 30, 2023, was $
Estimated amortization expense of the intangible assets to be recognized by the Company during the remainder of 2023 and over the next five years is as follows (in thousands):
| Year ending December 31, | Estimated Amortization Expense | |||
| Remaining in 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total | $ | |||
| 15. | Uncertainties |
The demand for the Company’s title insurance services is dependent primarily on the volume of residential and commercial real estate transactions. The volume of these transactions historically has been influenced by such factors as mortgage interest rates, inventory, affordability, availability of financing and the overall state of the economy. The Federal Reserve raised the federal funds rate a total of seven times throughout 2022, and four times in 2023 as of the filing date of this Quarterly Report on Form 10-Q, resulting in a current range from 5.25% to 5.50%. It is expected that the Federal Reserve may continue to increase the federal funds rate during 2023 to, among other things, control inflation. Should the Federal Reserve continue to raise rates in the future, this will likely result in further increases in market interest rates. Typically, when interest rates are increasing or when the economy is experiencing a downturn, real estate activity declines. As a result, the title insurance industry tends to experience decreased revenues and earnings, and potentially increased title claims experience.
A shortage in the supply of homes for sale, increasing home prices, rising mortgage interest rates, inflation and disrupted labor markets created some volatility in the residential real estate market in 2021 and 2022, which has continued into 2023. Additionally, geopolitical uncertainties associated with the war in Ukraine have created additional volatility in the global economy beginning in 2022. At this time, the Company is unable to predict the ultimate impact of such disruptions and geopolitical uncertainties.
The Company continues to evaluate the impact of these uncertainties on its operational and financial performance, specifically the impact on HC Realty, and NCTIC and Omega’s operations.
As of June 30, 2023, the Company has not experienced any adverse impacts to the payment of HC Common Stock and HC Series B Stock dividends.
| 16. | Subsequent Events |
As disclosed in a Current Report on Form 8-K filed by FedNat Holding Company (“FedNat”) with the SEC on December 12, 2022, on December 11, 2022, FedNat and certain of its wholly owned subsidiaries, including FedNat Underwriters, Inc. (“FNU”), filed voluntary petitions under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Florida in order to maximize value for all stakeholders. As part of the Chapter 11 process, FedNat will evaluate all strategic alternatives to maximize value for stakeholders, whether that be a reorganization of its business or a sale of its assets.
On January 26, 2023, the United States Bankruptcy Court for the Southern District of Florida, Ft. Lauderdale Division, entered an order (the “Order”) granting a motion from the debtors (including FNU) pursuant to Section 365(a) of the Bankruptcy Code authorizing such debtors to reject that certain Management Advisory Services Agreement dated and effective as of July 1, 2022 (the “Advisory Services Agreement”) between HGMA and FNU. Based on the Order, the Advisory Services Agreement is deemed rejected as of December 12, 2022.
Effective with the rejection of the Advisory Services Agreement, the Company will no longer earn compensation for the remaining duration of the agreement. On February 21, 2023, the Company filed a proof of claim for $
On July 27, 2023, FNU and HGMA, amongst other parties, entered into a settlement agreement (the “Settlement Agreement”) addressing both claims identified herein. In the Settlement Agreement, FNU and HGMA agreed that the cumulative amount allowed for both proofs of claim shall be $
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the accompanying Unaudited Consolidated Financial Statements, the notes thereto and the other unaudited financial data included in this Quarterly Report on Form 10-Q. The following discussion should also be read in conjunction with the audited consolidated financial statements and the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2023. The terms the “Company”, “we”, “our” or “us” refer to HG Holdings, Inc., together with its consolidated subsidiaries, and unless otherwise defined herein, capitalized terms used herein shall have the same meanings as set forth in our accompanying Unaudited Consolidated Financial Statements and the notes thereto.
Overview
For a description of our business, including descriptions of segments and recent business developments, see the discussion in Note 1 Preparation of Interim Unaudited Financial Statements – Description of the Business in the accompanying Unaudited Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q, which is incorporated by reference into this Part I, Item 2.
As of June 30, 2023, our sources of income include earnings from our title insurance subsidiaries, reinsurance premiums earned, management service fees earned and dividends on our HC Common Stock and HC Series B Stock. The Company believes that the revenue generated from these sources and cash on hand is sufficient to fund operating expenses for at least 12 months from the date of the accompanying Unaudited Consolidated Financial Statements.
The Company will continue to pursue acquisition opportunities which will allow us to potentially derive benefit from the Company’s net operating loss carryforwards and also create appropriate risk adjusted returns for stockholders.
Title Insurance Segment Trends and Conditions
Our title insurance segment revenue is closely related to the level of real estate activity that includes sales, mortgage financing and mortgage refinancing. Declines in the level of real estate activity or the average price of real estate sales will adversely affect our title insurance revenues.
We believe that real estate activity is generally dependent on mortgage interest rates, access and availability to mortgage debt, residential housing inventory, home prices, commercial property supply and demand, and the general economic conditions in the U.S. economy.
As of the February 21, 2023 Mortgage Finance Forecast, the Mortgage Bankers Association (“MBA”) expects residential transactions to see continued declines in 2023 due to higher mortgage interest rates before showing increased transaction volumes in 2024 and 2025, as it projects a decrease in mortgage interest rates during this period. Additionally, the MBA expects residential refinance transactions to continue to decrease in 2023 before starting to show increases in 2024 and 2025 as interest rates are expected to start decreasing in the second half of 2024.
The industry as a whole saw a decline in total real estate transactions in 2022, largely due to higher mortgage interest rates. Mortgage rates remained abnormally high after emergency actions taken by the Federal Reserve to substantially increase its benchmark interest rate in the final three quarters of 2022, in an attempt to slow the quarter over quarter inflation. The Federal Reserve raised the federal funds rate a total of seven times throughout 2022 and four times in 2023 as of the filing date of this Quarterly Report on Form 10-Q, resulting in a current range from 5.25% to 5.50%. It is expected that the Federal Reserve may continue to increase the federal funds rate during 2023 to, among other things, control inflation. Should the Federal Reserve continue to raise rates in the future, this will likely result in further increases in market interest rates. Per the MBA’s Mortgage Finance Forecast, interest rates on a Freddie Mac 30-year, fixed rate mortgage averaged 6.4% in the first quarter of 2023 as compared to 3.9% in the first quarter of 2022.
A shortage in the supply of homes for sale, increasing home prices, rising mortgage interest rates, inflation and disrupted labor markets created some volatility in the residential real estate market in 2021 and 2022, which has continued into 2023. Additionally, geopolitical uncertainties associated with the war in Ukraine have created additional volatility in the global economy beginning in 2022.
Because commercial real estate transactions tend to be generally driven by supply and demand for commercial space and occupancy rates in a particular area rather than by interest rate fluctuations, we believe that our commercial real estate title insurance business is less dependent on the industry cycles discussed above than our residential real estate title business. Commercial real estate transaction volume is also often linked to the availability of financing. Factors including U.S. tax reform and a shift in U.S. monetary policy have had, or are expected to have, varying effects on availability of financing in the U.S. Lower corporate and individual tax rates, and corporate tax-deductibility of capital expenditures have provided increased capacity and incentive for investments in commercial real estate.
Historically, real estate transactions have produced seasonal revenue fluctuations in the real estate industry. The first calendar quarter is typically the weakest quarter in terms of revenue due to the generally low volume of home sales during January and February. The second and third calendar quarters are typically the strongest quarters in terms of revenue, primarily due to a higher volume of residential transactions in the spring and summer months. The fourth quarter is typically strong due to the desire of commercial entities to complete transactions by year-end. Seasonality in 2020, 2021 and 2022 deviated from historical patterns due to COVID-19 and the subsequent rapid increase in interest rates. We have noted short-term fluctuations through recent years in resale and refinance transactions as a result of changes in interest rates.
Recent Bank Failures
In March 2023, three banks in the United States were placed into receivership by a federal banking regulator. In addition, in late March 2023, a large international financial institution suffering distress was forced by its principal regulator to be acquired by its rival. These events have caused great uncertainty and turmoil in the credit markets globally and may cause financial institutions to reduce their lending, which in turn could adversely affect our ability to access capital markets for our liquidity needs and/or cause our cost of capital to increase.
We will endeavor to limit uninsured deposits that we have with banks. Nevertheless, if a bank in which we hold funds fails or is subject to significant adverse conditions in the financial or credit markets, we could be subject to a risk of loss of all or a portion of such uninsured funds or be subject to a delay in accessing all or a portion of such uninsured funds.
Results from Operations
Comparison of Three and Six Months Ended June 30, 2023 to Three and Six Months Ended June 30, 2022
The Company generated dividend income of $257,000 and $513,000 for the three and six month periods ended June 30, 2023 and 2022, respectively. Dividend income relates primarily to the HC Common Stock and HC Series B Stock held by the Company.
As a result of the Company’s title insurance operations, the Company generated title premium and other title fee revenue of $2.7 million and $4.6 million for the three and six month periods ended June 30, 2023, respectively, compared to $1.9 million and $3.4 million for the three and six month periods ended June 30, 2022, respectively. The title insurance subsidiaries’ cost of revenue consists primarily of a provision for title claim losses and underwriting expenses, which primarily consist of commissions to title agencies. The title insurance operating expenses consist primarily of personnel expenses, office and technology expenses and professional fees. Operating expenses for the three and six month periods ended June 30, 2023 were $3.0 million and $5.7 million, respectively, consisting primarily of $2.0 million and $3.7 million in wages, $258,000 and $484,000 of rent expense, and $456,000 and $590,000 in professional and legal fees, respectively. Operating expenses for the three and six month periods ended June 30, 2022 were $2.0 million and $3.85 million, respectively, consisting primarily of $1.3 million and $2.5 million in wages, $172,000 and $326,000 of rent expense, and $220,000 and $532,000 in professional and legal fees, respectively.
Corporate general and administrative expenses are not directly allocable to any of our reporting segments and consist primarily of wages and personnel costs, legal and professional fees, insurance expense, and stock based compensation. Corporate general and administrative expenses incurred were $427,000 and $810,000 for the three and six month periods ended June 30, 2023, respectively, compared to $281,000 and $566,000 for the three and six month periods ended June 30, 2022, respectively. General and administrative expenses for the three and six month periods ended June 30, 2023 consisted of $164,000 and $221,000 of professional fees, $143,000 and $326,000 of wages and personnel costs, and $120,000 and $263,000 of other operating expenses, respectively. General and administrative expenses for the three and six month periods ended June 30, 2022 consisted of $63,000 and $188,000 of professional fees, $63,000 and $125,000 of wages and personnel costs, $20,000 and $41,000 of stock based compensation expense, and $135,000 and $212,000 of other operating expenses, respectively.
Our effective tax rate for the three and six month periods ended June 30, 2023 was effectively 16.3% and 3.0%, respectively. Our effective tax rate for the three and six month periods ended June 30, 2022 was effectively 0% due to our net operating loss carryforwards.
Financial Condition, Liquidity and Capital Resources
Sources of liquidity include cash on hand, earnings from our title insurance subsidiaries, and dividends from our HC Common Stock and HC Series B Stock. At June 30, 2023, we had $8.8 million in cash and an additional $12.3 million in restricted cash, substantially all of which is cash held in escrow for title insurance transactions. A portion of our unrestricted and restricted cash is currently held in savings accounts earning interest at approximately 4.4% annually. We also received quarterly dividends on our HC Realty Common Stock and HC Series B Stock at annual rates of 5.5% and 10%, respectively, during the three and six months ended June 30, 2023.
We believe that the resources stated above will be sufficient to satisfy our operating requirements for the foreseeable future, and we do not anticipate a need to raise funds from sources other than those described above within the next 12 months.
Cash flows from operating activities differ from net income due to adjustments for non-cash items, such as gains and losses on investments and affiliates, the timing of disbursements for taxes, claims and other accrued liabilities, and collections or changes in receivables and other assets. Net cash provided by operations for the six month period ended June 30, 2023 of $5.9 million consisted of dividends on our HC Common Stock of $83,000, dividends on our HC Series B Stock of $513,000, and an increase of $6.7 million in escrow liabilities on the title insurance subsidiaries, partially offset primarily by personnel costs of $4.1 million, title policy software, processing and printing costs of $351,000, office rent of $484,000 and legal and professional fees of $590,000. Net cash used in operations for the six month period ended June 30, 2022 of $1.3 million primarily consisted of personnel costs of $2.2 million, title policy software, processing and printing costs of $466,000, office rent of $326,000 and legal and professional fees of $511,000, partially offset by revenue from our title operations, dividends on our HC Common Stock of $83,000, dividends on our HC Series B Stock of $512,000, and a decrease of $165,000 in escrow liabilities on the title insurance subsidiaries.
Cash flows from investing activities differ from net income due to adjustments such as purchases and sales of plant, property, and equipment, purchases and proceeds from sales of investments. Net cash provided by investing activities for the six month period ended June 30, 2023 was $151,000 consisted of proceeds of the maturity of securities of $201,000 offset by purchases of equipment of $50,000. Net cash used in investing activities for the six month period ended June 30, 2022, was $2.03 million consisting of $204,000 of proceeds from the sale of assets offset by $89,000 purchases of equipment and $2.145 million of securities.
Cash flows from financing activities differ from net income due to adjustments such as loan proceeds, payments of principal on outstanding loans, capital contributions, dividends to shareholders, and the repurchase of outstanding shares of common stock. Cash flows used in financing activities for the six month period ended June 30, 2023 consisted of $33,000 related to the repurchase of shares of common stock. There was no cash flow used in financing activities for the six month period ended June 30, 2022.
Critical Accounting Policies
Our critical accounting policies and estimates are provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our Annual Report on Form 10-K for the year ended December 31, 2022. We believe there have been no new critical accounting policies or material changes to our existing critical accounting policies and estimates during the six months ended June 30, 2023.
Forward-Looking Statements
Certain statements made in this report are not based on historical facts, but are forward-looking statements. These statements can be identified by the use of forward-looking terminology such as “believes,” “estimates,” “expects,” “may,” “will,” “should,” “could,” or “anticipates,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. These statements reflect our reasonable judgment with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include the occurrence of events that negatively impact the Company’s liquidity in such a way as to limit or eliminate the Company’s ability to use its cash on hand to fund further asset acquisitions, an inability on the part of the Company to identify additional suitable businesses to acquire or develop, and the occurrence of events that negatively impact the title insurance operations and/or the business or assets of HC Realty and the value of our investment in HC Realty. Any forward-looking statement speaks only as of the date of this filing and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new developments or otherwise.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Not required to be provided by a smaller reporting company.
ITEM 4. Controls and Procedures
Evaluation of disclosure controls and procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.
As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of June 30, 2023 was conducted under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures, as of June 30, 2023, were effective at the reasonable assurance level.
Changes in internal controls over financial reporting.
Changes in internal controls over financial reporting. There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) that occurred during the three months ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Hollie Drive Litigation
In November 2019, we received notice that the Company and the Buyer were defendants in a pending case in the Circuit Court for Henry County, Virginia. The case, which had been instituted on September 18, 2019 by Hollie Drive Associates, LLC (“Hollie”), raises issues arising from the purported breach of a lease for warehouse space in Henry County, Virginia, which is owned by Hollie and was previously rented by the Company. The relevant lease was assigned to the Buyer in connection with the previously disclosed Asset Sale. The complaint asserts that the Buyer breached various provisions of the lease including failure to make certain rental payments and failure to pay for certain clean-up and reconstruction after the Buyer vacated the property. The complaint seeks damages in the amount of approximately $555,000 and attorney’s fees. Hollie named the Company as a party because the Company was the original tenant under the lease. Under the asset purchase agreement entered into in connection with the Asset Sale, the Buyer agreed to assume and indemnify the Company against post-closing liabilities arising under the lease including those asserted in the complaint. The Buyer’s filings in the case do not dispute the obligation to indemnify the Company for any damages awarded in the case. Based upon discussions with the Buyer and documents produced to date by Hollie, it appears Hollie has asserted damages greatly exceeding the likely recovery in the case. Given the relatively low damages amount and the Buyer’s indemnity obligation, the Company believes it is not probable the case will result in a material adverse effect on its financial statements.
Fednat Underwriters, Inc. Bankruptcy & Related Proof of Claim
As disclosed in a Current Report on Form 8-K filed by FedNat Holding Company (“FedNat”) with the SEC on December 12, 2022, on December 11, 2022, FedNat and certain of its wholly owned subsidiaries, including FedNat Underwriters, Inc. (“FNU”), filed voluntary petitions under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Florida in order to maximize value for all stakeholders. As part of the Chapter 11 process, FedNat will evaluate all strategic alternatives to maximize value for stakeholders, whether that be a reorganization of its business or a sale of its assets.
On January 26, 2023, the United States Bankruptcy Court for the Southern District of Florida, Ft. Lauderdale Division, entered an order (the “Order”) granting a motion from the debtors (including FNU) pursuant to Section 365(a) of the Bankruptcy Code authorizing such debtors to reject that certain Management Advisory Services Agreement dated and effective as of July 1, 2022 (the “Advisory Services Agreement”) between HGMA and FNU. Based on the Order, the Advisory Services Agreement is deemed rejected as of December 12, 2022.
Effective with the rejection of the Advisory Services Agreement, the Company will no longer earn compensation for the remaining duration of the agreement. On February 21, 2023, the Company filed a proof of claim for $609,771 of unsecured claims for compensation earned pre-petition pursuant to the Advisory Services Agreement. The Company also filed a claim for post-petition damages arising from the rejection of the agreement prior to its contractual end date.
On July 27, 2023, FNU and HGMA, amongst other parties, entered into a settlement agreement (the “Settlement Agreement”) addressing both claims identified herein. In the Settlement Agreement, FNU and HGMA agreed that the cumulative amount allowed for both proofs of claims shall be $1,109,771. On August 11, 2023, the United States Bankruptcy Court for the Southern District of Florida, Ft. Lauderdale Division, entered an order (the “Settlement Order”) approving the Settlement Agreement. The total amount recovered for the proofs of claim is subject to successful execution of the proposed Chapter 11 plan by FedNat and its affiliates, including FNU.
Anchor Title Litigation
During the second quarter of 2023, one of the Company’s subsidiaries, Omega National Title Agency, LLC (“Omega”), became involved in litigation in the United States District Court of the Northern District of Florida. The case, instituted by Anchor Title & Escrow, LLC (“Anchor”) raises issues arising from Omega hiring former employees of said entity. While Anchor’s first two complaints were dismissed by the Court, the current pleading, and Anchor’s second amended complaint, asserts that Omega misappropriated trade secrets and violated the Florida Uniform Trade Secret Act amongst other counts. Omega has retained outside counsel and the Company believes that there is no merit to the any claims being made against Omega. Therefore, the Company believes it is unlikely that the case will result in a material adverse effect on the Company’s financial statements.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
On August 5, 2022, the Board authorized the repurchase of up to $1.5 million of shares of the Company’s common stock. The authorization does not obligate the Company to acquire a specific number of shares during any period and does not have an expiration date, but it may be modified, suspended, or discontinued at any time at the discretion of the Board. Repurchases may be made from time to time in the open market, or through privately negotiated transactions or otherwise, in compliance with applicable laws, rules and regulations, and subject to the Company’s cash requirements for other purposes, and other factors it deems relevant.
The following table summarizes the Company’s repurchase activity under the share repurchase program for the three months ended June 30, 2023.
| Period
|
Total number of shares purchased
|
Average price paid per share
|
Total number of shares purchased as part of publicly announced plans or programs |
Maximum dollar value of shares that may yet be purchased under the plans or programs |
||||||||
| April 2023 |
256 | $7.20 | 256 | $1,475,951 | ||||||||
| May 2023 |
505 | $6.93 | 505 | $1,472,464 | ||||||||
| June 2023 |
3,504 | $7.16 | 3,504 | $1,447,430 | ||||||||
| Total |
4,265 | $7.14 | 4,265 | $1,447,430 |
ITEM 6. Exhibits
| 3.1 |
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| 3.2 |
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| 3.3 |
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| 4.1 |
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| 4.2 |
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| 4.3 |
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| 31.1 |
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| 31.2 |
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| 32.1 |
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| 32.2 |
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| 101.INS |
Inline XBRL INSTANCE DOCUMENT (1) |
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| 101.SCH |
Inline XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT (1) |
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| 101.CAL |
Inline XBRL TAXONOMY EXTENSION CALCULATION LINKBASE (1) |
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| 101.DEF |
Inline XBRL TAXONOMY EXTENSION DEFINITION LINKBASE (1) |
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| 101.LAB |
Inline XBRL TAXONOMY EXTENSION LABELS LINKBASE (1) |
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| 101.PRE |
Inline XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE (1) |
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| 104 |
Cover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101) (1) |
| (1) |
Filed herewith |
| (2) |
Furnished herewith |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: August 14, 2023 |
HG HOLDINGS, INC. |
|
| By: /s/ Justin H. Edenfield |
||
| Name: Justin H. Edenfield |
||
| Title: Principal Financial and Accounting Officer |
Exhibit 31.1
CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Steven A. Hale II, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q of HG Holdings, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods in this report. |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
Date: August 14, 2023 |
By: /s/ Steven A. Hale II |
|
Name: Steven A. Hale II |
|
|
Title: Chairman and Chief Executive Officer |
Exhibit 31.2
CERTIFICATIONS OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Justin H. Edenfield, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q of HG Holdings, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods in this report. |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
Date: August 14, 2023 |
By: /s/ Justin H. Edenfield |
|
Name: Justin H. Edenfield |
|
|
Title: Principal Financial and Accounting Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the HG Holdings, Inc. (the “Company”) Quarterly Report on Form 10-Q for the period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven A. Hale II, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
|
(1). |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
|
(2). |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
Date: August 14, 2023 |
By: /s/ Steven A. Hale II |
|
Name: Steven A. Hale II |
|
|
Title: Chairman and Chief Executive Officer |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the HG Holdings, Inc. (the “Company”) Quarterly Report on Form 10-Q for the period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Justin H. Edenfield, Principal Financial and Accounting Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
|
(1). |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
|
(2). |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
Date: August 14, 2023 |
By: /s/ Justin H. Edenfield |
|
Name: Justin H. Edenfield |
|
|
Title: Principal Financial and Accounting Officer |
Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Common stock, par value (in dollars per share) | $ 0.02 | $ 0.02 |
| Common stock, shares authorized (in shares) | 35,000,000 | 35,000,000 |
| Common stock, shares issued (in shares) | 2,865,897 | 2,870,332 |
| Common stock, shares outstanding (in shares) | 2,865,897 | 2,870,332 |
Note 1 - Preparation of Interim Unaudited Financial Statements |
6 Months Ended | ||
|---|---|---|---|
Jun. 30, 2023 | |||
| Notes to Financial Statements | |||
| Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Text Block] |
The consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of the Company (as defined below), these statements include all adjustments necessary for a fair presentation of the results of all interim periods reported herein. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been either condensed or omitted pursuant to SEC rules and regulations. However, the Company believes that the disclosures made are adequate for a fair presentation of results of operations and financial position. Operating results for the interim periods reported herein may not be indicative of the results expected for the year. These consolidated financial statements should be read in conjunction with the financial statements and accompanying notes included in the Company’s latest Annual Report on Form 10-K filed with the SEC on March 30, 2023.
HG Holdings, Inc., together with its consolidated subsidiaries (the “Company,” “we,” ‘us” or “our”), operates through its wholly owned subsidiaries, National Consumer Title Insurance Company (“NCTIC”), National Consumer Title Group, LLC (“NCTG”), Title Agency Ventures, LLC (“TAV”), HG Managing Agency, LLC (“HGMA”), and Omega National Title Agency, LLC (“Omega”), and through an affiliated investment in HC Government Realty Trust, Inc., a Maryland corporation (“HC Realty”).
Description of the Business
Title Insurance
The Company engages in issuing title insurance through its subsidiary, NCTIC, and providing title agency services through its subsidiaries, NCTG, TAV, and Omega. Through NCTIC, the Company underwrites land title insurance for owners and mortgagees as the primary insurer. The Company currently only provides title insurance services in the state of Florida.
Title insurance protects against loss or damage resulting from title defects that affect real property. When real property is conveyed from one party to another, occasionally there is an undisclosed defect in the title or a mistake or omission in a prior deed, will or mortgage that may give a third party a legal claim against such property. If a covered claim is made against real property, title insurance provides indemnification against insured defects. There are two basic types of title insurance policies – one for the mortgage lender and one for the real property owner. A lender often requires the property owner to purchase a lender’s title insurance policy to protect its position as a holder of a mortgage loan, but the lender’s title insurance policy does not protect the property owner. The property owner has to purchase a separate owner’s title insurance policy to protect its investment.
NCTIC issues title insurance policies in Florida through its home office and through a network of affiliated and independent title agents. In the State of Florida, issuing agents are independent agents or subsidiaries of community and regional mortgage lending institutions, depending on local customs and regulations. The ability to attract and retain issuing agents is a key determinant of the Company’s growth in title insurance premiums written.
Revenues for the title insurance segment primarily result from purchases of new and existing residential and commercial real estate, refinance activity and certain other types of mortgage lending such as home equity lines of credit. Title insurance premiums vary from state to state and are subject to extensive regulation. Statutes generally provide that rates must not be excessive, inadequate or unfairly discriminatory. The process of implementing a rate change in most states involves pre-approval by the applicable state insurance regulator.
Volume is a factor in the Company’s title insurance operation’s profitability due to fixed operating costs that are incurred regardless of title insurance premium volume. The resulting operating leverage tends to amplify the impact of changes in volume on profitability. The Company’s title insurance profitability also depends, in part, upon its ability to manage its investment portfolio to maximize investment returns and to minimize risks such as interest rate changes, defaults and impairments of assets.
The Company’s volume of title insurance premiums is affected by the overall level of residential and commercial real estate activity, which includes property sales, mortgage financing and mortgage refinancing. Real estate activity, home sales and mortgage lending are cyclical in nature. Real estate activity is affected by a number of factors, including the availability of mortgage credit, the cost of real estate, consumer confidence, employment and family income levels, and general United States economic conditions. Interest rate volatility is also an important factor in the level of residential and commercial real estate activity.
The Company’s title insurance premiums in future periods are likely to fluctuate due to these and other factors which are beyond management’s control.
Historically, the title insurance business tends to be seasonal as well as cyclical. Because home sales are typically strongest in periods of favorable weather, the first calendar quarter tends to have the lowest activity levels, while the spring and summer months tend to be more active. Mortgage refinance activity tends to be influenced less by seasonality and more by economic cycles, with activity levels increasing during times of falling interest rates.
Real Estate Related
The Company engages in rental real estate through its equity investment in HC Realty. HC Realty is an internally-managed real estate investment trust (“REIT”) focused on acquiring, developing, financing, owning and managing build-to-suit or renovate-to-suit, single-tenant properties leased primarily to the U.S. government and administered by the U.S. General Services Administration or directly by the federal government agencies or sub-agencies occupying such properties (referred to as “Government Properties”). HC Realty invests primarily in Government Properties ranging from 10,000 to 100,000 rentable square feet that are in their initial lease term after original construction or renovation-to-suit. HC Realty further emphasizes Government Properties that perform law enforcement, public service or other functions that support the mission of the agencies or sub-agencies occupying such properties. Leases associated with the Government Properties in which HC Realty invests are full faith and credit obligations of the United States of America. HC Realty intends to grow its portfolio primarily through direct acquisitions and development of Government Properties; although, HC Realty may elect to invest in Government Properties through indirect investments, such as joint ventures.
The Company currently owns 300,000 shares of HC Realty’s Common Stock (the “HC Common Stock”) and 1,025,000 shares of HC Realty’s 10.00% Series B Cumulative Convertible Preferred stock (the “HC Series B Stock”). On March 19, 2019, we purchased 300,000 shares of HC Common Stock for an aggregate purchase price of $3,000,000 and 200,000 shares of HC Series B Stock for an aggregate purchase price of $2,000,000. On April 3, April 9, and June 29, 2020, the Company entered into subscription agreements with HC Realty, pursuant to which we purchased 100,000, 250,000, and 475,000 shares of HC Series B Stock, respectively, for an aggregate purchase price of $8,250,000. As a result of these purchases, we currently own approximately 26.05% of the voting interest of HC Realty.
As of June 30, 2023, HC Realty owned 35 Government Properties, comprised of 33 Government Properties that it owns and Government Properties that it owns subject to a ground lease, each of which is leased to the United States government and occupied by tenant agencies and sub-agencies such as the Federal Bureau of Investigation, the Department of Veterans Affairs, the Drug Enforcement Administration, the Immigration & Customs Enforcement, the Social Security Administration and the Department of Transportation. HC Realty’s portfolio properties contain approximately 663,000 leased rentable square feet located in 22 states. As of June 30, 2023, its portfolio properties are 98% leased to the United States government and occupied by 12 different federal government agencies. Based on leased rentable square feet, the portfolio has a weighted average remaining lease term of 9.2 years if none of the tenants’ early termination rights are exercised and 5.7 years if all of the tenants’ early termination rights are exercised.
Reinsurance Related
The Company, through the formation of White Rock USA Cell 47, previously engaged in providing another insurance company excess-of-loss reinsurance coverage related to catastrophic weather risk in Texas. The Company does currently have any reinsurance contracts in-force during the six month period ended June 30, 2023; however, the Company may actively look to provide reinsurance coverage to other carriers as future opportunities arise.
Management Advisory Services Related
The Company, through its wholly-owned subsidiary HGMA, engages in providing management advisory services including formation, operational, and restructuring services.
Effective April 1, 2023, the Company, through HGMA, engages in providing management advisory services to a related captive managing general agency regarding its anticipated assumption of policies from Citizens Property Insurance Company. The services include underwriting, modeling, and advising on the subset of potential policies selected for the proposed assumption. The engagement is for six months from the effective date of the agreement at a monthly fee of $200,000.
Effective April 1, 2023, the Company, through HGMA, engages in providing management advisory services to a related reinsurance intermediary. The services include legal formation, licensure, regulatory approval, and other general operational services to allow the intermediary to adequately perform its business functions. The engagement is for twelve months from the effective date of the agreement at a monthly fee of $50,000.
For information about our reportable segments, refer to Note 9 Segment Information.
Developments Impacting Comparison of the Three- and Six-Month Periods ended June 30, 2023 and 2022
Effective August 1, 2022, Omega acquired substantially all the assets of Omega Title Florida, LLC (“OTF”). In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, the Company has determined that the transaction should be accounted for as a business combination. The acquisition allows Omega to expand into additional geographic areas of Florida and expand its footprint.
For information about our business combinations, refer to Note 12 Business Combinations.
Recent Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments in ASU 2016-13 require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendment is effective for public entities for annual reporting periods beginning after December 15, 2022. Early application is permitted for reporting periods beginning after December 15, 2018, although the Company has not opted to do so. The Company has adopted ASU 2016-13 with no related impact to the consolidated financial statements. |
Note 2 - Subordinated Notes Receivable |
6 Months Ended | ||
|---|---|---|---|
Jun. 30, 2023 | |||
| Notes to Financial Statements | |||
| Loans, Notes, Trade and Other Receivables Disclosure [Text Block] |
The Company received a $7.4 million subordinated secured promissory note (the “Original Note”) from Stanley Furniture Company, LLC, formerly known as Churchill Downs, LLC (the “Buyer”), as partial consideration for the sale of substantially all of our assets to the Buyer during the first quarter of 2018 (the “Asset Sale”). On September 6, 2018, the Buyer sold certain of its assets (the “S&L Asset Sale”), including certain inventory and the Stone & Leigh tradename to Stone & Leigh, LLC (“S&L”), which is owned by a group which includes Matthew W. Smith, the Company’s former interim Chief Executive Officer. As a part of the S&L Asset Sale, the Buyer assigned to S&L certain of its rights and obligations under the Original Note. In connection with the assignment, the Company entered into an Amended and Restated Subordinated Secured Promissory Note with the Buyer (the “A&R Note”) and a new Subordinated Secured Promissory Note with S&L (the “S&L Note”). The A&R Note had a principal amount as of the assignment date of $3.3 million.
S&L Note
The S&L Note had a principal amount of $4.4 million as of the assignment date. The S&L Note matured on March 2, 2023, at which time the total principal amount became due. Interest on the S&L Note accrues at a fixed rate of 10% per annum. No cash interest payments were accrued or received during the three or six months ended June 30, 2023 and 2022.
As a result of the Company’s recording of impairment losses in prior quarters, based on current information and events, including the impact of COVID-19 on S&L’s business and its customers, the Company fully impaired the S&L Note as of December 31, 2022. Upon maturity on March 2, 2023, S&L informed the Company that it will not be able to pay the Company any amounts outstanding including principal or interest due. Any future recoveries from S&L, if any, will be recognized as Other Income on the Company’s Unaudited Consolidated Statements of Operations when the recoveries are recognized. |
Note 3 - Investment in Affiliate |
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| Equity Method Investments and Joint Ventures Disclosure [Text Block] |
The HC Series B Stock is not deemed to be in-substance common stock and is accounted for using the measurement alternative for equity investments with no readily determinable fair value. The HC Series B Stock will be reported at cost, adjusted for impairments or any observable price changes in ordinary transactions with identical or similar investments issued by HC Realty.
The following table summarizes the Company’s investment in HC Realty as of June 30, 2023, and December 31, 2022 (in thousands):
The Company’s investment in HC Common Stock is accounted for under the equity method of accounting.
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Note 4 - Investments |
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| Investment [Text Block] |
The following table details investments by major investment category, at June 30, 2023 (in thousands):
The following table details investments by major investment category, at December 31, 2022 (in thousands):
The table below summarizes our fixed maturities at June 30, 2023 (dollars in thousands) by contractual maturity periods. Actual results may differ as issuers may have the right to call or prepay obligations, with or without penalties, prior to the contractual maturities of those obligations.
Fair value measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on our Unaudited Consolidated Balance Sheets at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows:
Level 1: Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we can access.
Level 2: Assets and liabilities whose values are based on the following:
Level 3: Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect our estimates of the assumptions that market participants would use in valuing the assets and liabilities.
We estimate the fair value of our investments using the closing prices on the last business day of the reporting period, obtained from active markets such as the New York Stock Exchange, Nasdaq and NYSE American. For securities for which quoted prices in active markets are unavailable, we use a third-party pricing service that utilizes quoted prices in active markets for similar instruments, benchmark interest rates, broker quotes and other relevant inputs to estimate the fair value of those securities for which quoted prices are unavailable. Our estimates of fair value reflect the interest rate environment that existed as of the close of business on June 30, 2023. Changes in interest rates subsequent to June 30, 2023 may affect the fair value of our investments.
The fair value of our fixed maturities is initially calculated by a third-party pricing service. Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of proprietary models, produce valuation information in the form of a single fair value for individual fixed-income and other securities for which a fair value has been requested. The inputs used by the valuation service providers include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, liquidity spreads, currency rates and other information, as applicable. Credit and liquidity spreads are typically implied from completed transactions and transactions of comparable securities. Valuation service providers also use proprietary discounted cash flow models that are widely accepted in the financial services industry and similar to those used by other market participants to value the same financial information. The valuation models take into account, among other things, market observable information as of the measurement date, as described above, as well as the specific attributes of the security being valued, including its term, interest rate, credit rating, industry sector and, where applicable, collateral quality and other issue or issuer specific information. Executing valuation models effectively requires seasoned professional judgment and experience.
All fixed-income securities are classified as held-to-maturity and are reported at amortized cost as of June 30, 2023 and December 31, 2022. The Company performs ongoing impairment evaluations, and we did record any other then temporary impairments during the three or six months ended June 30, 2023 and 2022.
The Company’s other investments include investments in limited partnerships whose purpose is to invest capital in various growth-oriented enterprises. The Company does not have significant influence over any investee and the Company’s investment typically represents less than 5% of the investee’s ownership. These investments do not meet the criteria of accounting under the equity method.
The following table presents the fair value of our financial instruments measured on a recurring basis by level at June 30, 2023 (in thousands):
The following table presents the fair value of our financial instruments measured on a recurring basis by level at December 31, 2022 (in thousands):
The following table presents selected information regarding Level 3 assets and liabilities measured at fair value on a recurring basis during the six month period ended June 30, 2023 (in thousands):
The following table presents selected information regarding Level 3 assets and liabilities measured at fair value on a recurring basis during the year ended December 31, 2022 (in thousands):
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Note 5 - Reserve for Title Claims |
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| Insurance Disclosure [Text Block] |
NCTIC’s reserves for unpaid losses and loss adjustment expenses are established using estimated amounts required to settle claims for which notice has been received (reported) and the amount estimated to be required to satisfy claims that have been incurred but not yet reported (“IBNR”). Despite the variability of such estimates, management believes that the total reserve for claims is adequate to cover claim losses which might result from pending and future claims under title insurance policies issued through June 30, 2023. We continually update loss reserve estimates as new information becomes known, new loss patterns emerge or as other contributing factors are considered and incorporated into the analysis of reserve for claim losses. Due to the uncertainty inherent in the process and to the judgment used by management, the ultimate liability may be greater or less than our current reserves. If actual claims loss development varies from what is currently expected and is not offset by other factors, it is possible that additional reserve adjustments may be required in future periods in order to maintain our recorded reserve within a reasonable range of our actuary's central estimate.
A reconciliation of the activity in the reserves account for the six month period ended June 30, 2023 and 2022 is as follows (in thousands):
At June 30, 2023, there were no reinsurance recoverables on paid claims or unpaid reserves.
For the six months ended June 30, 2023, there was no development of the net provision for claims attributable to insured events of the prior year as a result of estimation of the reserve for claims. Original estimates are decreased or increased as additional information becomes known regarding individual claims.
A summary of the Company’s loss reserves at June 30, 2023 and December 31, 2022 are as follows (in thousands):
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Note 6 - Reinsurance |
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| Reinsurance [Text Block] |
Certain premiums and benefits at NCTIC are ceded to other insurance companies under various reinsurance agreements. The reinsurance agreements provide NCTIC with increased capacity to write more risk and maintain its exposure to loss within its capital resources. For the six month period ended June 30, 2023, NCTIC's reinsurance program consisted of excess of loss reinsurance treaties. The following is a summary of the reinsurance coverage.
Effective January 1, 2023, NCTIC entered into a per risk excess of loss reinsurance agreement that provides coverage of $4,000,000 in excess of $1,000,000 on each and every risk. The contract allows for one full reinstatement at 100% additional premium as to time and pro rata as to amount. This per risk agreement is shared with other non-affiliated companies. Each company pays its share of the reinsurance cost based on separate company earned premiums. The agreement expires December 31, 2023.
Effective January 1, 2022, NCTIC entered into a reinstatement premium protection reinsurance agreement to reinsure the reinstatement premium payment obligations of NCTIC under the shared per risk excess of loss agreement. The coverage was limited to 100% of the original contracted reinsurance placement. This agreement was shared with the other nonaffiliated companies. Each company paid its share of the reinsurance cost based on separate company earned premiums. The agreement expired on December 31, 2022.
NCTIC’s reinsured risks are treated, to the extent of reinsurance, as though they are risks for which the Company is not liable. However, NCTIC remains contingently liable in the event the reinsuring companies do not meet their obligations under these reinsurance contracts. NCTIC uses a broker to place its reinsurance through Lloyd’s syndicates, a group of underwriters who work together to provide insurance coverage for a variety of risks. Chaucer Ltd (“Chaucer”) and Beazley Syndicate (“Beazley”) are each 50% participants in the Lloyd’s syndicate. As such, NCTIC has a concentration of reinsurance risk with these third party reinsurers that could have a material impact on NCTIC’s financial position in the event that either of these reinsurers fail to perform their obligations under the reinsurance treaty. As of June 30, 2023, both reinsurers had an A-issuer credit rating from AM Best, an AA- from Fitch, and an A+ from S&P. The Company monitors both the financial condition of individual reinsurers and risk concentration arising from similar activities and economic characteristics of reinsurers to attempt to reduce the risk of default by such reinsurers. Given the quality of the reinsurers, management believes this possibility to be remote. See Note 5 Reserve for Title Claims for recoveries due from reinsurers relating to paid and unpaid claims under these treaties.
The effects of reinsurance on premiums written and earned at NCTIC are as follows:
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Note 7 - Statutory Reporting |
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| Notes to Financial Statements | |||
| Statutory Accounting Practices [Text Block] |
NCTIC's assets, liabilities, and results of operations have been reported in accordance with GAAP, which varies from statutory accounting practices (“SAP”) prescribed or permitted by insurance regulatory authorities. Prescribed SAP are found in a variety of publications of the National Association of Insurance Commissioners (“NAIC”), state laws and regulations, as well as through general practices. The principal differences between SAP and GAAP are that under SAP: (1) certain assets that are not admitted assets are eliminated from the balance sheet, (2) a supplemental reserve for claims is charged directly to unassigned surplus rather than provision for claims under GAAP, and (3) differences may arise in the computation of deferred income taxes. The Company must file with applicable state insurance regulatory authorities an “Annual Statement” which reports, among other items, net income (loss) and stockholders' equity (called “surplus as regards policyholders” in statutory reporting).
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Note 8 - Segment Information |
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| Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting Disclosure [Text Block] |
The Company has reportable segments, title insurance services, reinsurance, management services, and real estate. The remaining immaterial segments have been combined into a group called “Corporate and Other.” The title insurance segment issues title insurance policies, which insures titles to real estate, and provides title agency services for residential and commercial real estate transactions. The real estate segment, through an affiliate investment in HC Realty, owns and operates a portfolio of single-tenant properties leased primarily to the U.S. government and administered by the U.S. General Services Administration or directly by the federal government agencies or sub-agencies occupying such properties.
Provided below is selected financial information about the Company’s operations by segment for the six months ended June 30, 2023 (in thousands):
Provided below is selected financial information about the Company’s operations by segment for the six months ended June 30, 2022 (in thousands):
Provided below is selected financial information about the Company’s operations by segment for the three months ended June 30, 2023 (in thousands):
Provided below is selected financial information about the Company’s operations by segment for the three months ended June 30, 2022 (in thousands):
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Note 9 - Income Taxes |
6 Months Ended | ||
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Jun. 30, 2023 | |||
| Notes to Financial Statements | |||
| Income Tax Disclosure [Text Block] |
During the six months ended June 30, 2023, the Company recorded a non-cash credit to its valuation allowance of $168,000, increasing its valuation allowance against deferred tax assets to $7.9 million as of June 30, 2023. The primary assets covered by this valuation allowance are net operating losses, which are approximately $37.8 million at June 30, 2023. The Company did make any cash payments for income tax in the six month period ended June 30, 2023 and 2022 due to its net operating loss carryforwards.
The Company maintains a valuation allowance against deferred tax assets that currently exceed our deferred tax liabilities. The primary assets covered by this valuation allowance are net operating loss carry-forwards. The valuation allowance was calculated in accordance with the provisions of ASC 740, Income Taxes, which requires an assessment of both positive and negative evidence when measuring the need for a valuation allowance. The Company’s results over the most recent four-year period were heavily affected by business restructuring activities. The Company’s cumulative loss represented sufficient negative evidence to require a valuation allowance. The Company intends to maintain a valuation allowance until sufficient positive evidence exists to support its reversal, resulting in no deferred tax asset balance being recognized. Should the Company determine that it will not be able to realize all or part of its deferred tax asset in the future, an adjustment to the deferred tax asset will be charged to income in the period such determination is made.
As of June 30, 2023, the Company has no deferred tax assets not covered by a valuation allowance.
Our effective tax rate for the three and six month periods ended June 30, 2023 was effectively 16.3% and 3.0%, respectively. Our effective tax rate for the three and six month periods ended June 30, 2022 was effectively 0% due to our net operating loss carryforwards.
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Note 10 - Stockholders' Equity |
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| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Text Block] |
Basic earnings per common share are based upon the weighted average shares outstanding. Outstanding stock options and restricted stock are treated as potential common stock for purposes of computing diluted earnings per share. Basic and diluted earnings per share are calculated using the following share data (in thousands):
For the three and six month periods ended June 30, 2023 and 2022, there were no stock options or restricted stock awards outstanding.
On August 5, 2022, the Company’s board of directors (the “Board”) authorized the repurchase of up to $1.5 million of shares of the Company’s common stock. The authorization does not obligate the Company to acquire a specific number of shares during any period and does not have an expiration date, but it may be modified, suspended, or discontinued at any time at the discretion of the Board. Repurchases may be made from time to time in the open market, or through privately negotiated transactions or otherwise, in compliance with applicable laws, rules and regulations, and subject to the Company’s cash requirements for other purposes, and other factors it deems relevant.
During the six months ended June 30, 2023, the Company repurchased 4,435 shares of common stock, at a weighted average price per share of $7.14. The total cost of shares repurchased, inclusive of fees and commissions, during the six month period ended June 30, 2023 was $31,762, or $7.16 per share.
During the three months ended June 30, 2023, the Company repurchased 4,265 shares of common stock, at a weighted average price per share of $7.14. The total cost of shares repurchased, inclusive of fees and commissions, during the three month period ended June 30, 2023 was $30,451, or $7.14 per share.
A reconciliation of the activity in Stockholders’ Equity accounts for the three and six months ended June 30, 2023, is as follows (in thousands):
A reconciliation of the activity in Stockholders’ Equity accounts for the three and six months ended June 30, 2022, is as follows (in thousands):
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Note 11 - Leases |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||
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| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||
| Lessee, Operating Leases [Text Block] |
Right-of-use assets and lease liabilities related to operating leases under ASC Topic 842, Leases (“ASC Topic 842”), are recorded when the Company and its subsidiaries are party to a contract, which conveys the right for it to control an asset for a specified period of time. Substantially all of our operating lease arrangements relate to rented office space and real estate for our title operations. We generally are not a party to any material contracts considered finance leases. Right-of-use assets and lease liabilities under ASC Topic 842 are recorded as Lease assets and Lease liabilities, respectively, on the Unaudited Consolidated Balance Sheets.
Our operating leases range in term from to years. As of June 30, 2023, the weighted-average remaining lease term of our operating leases was 2.65 years.
Our lease agreements do not contain material variable lease payments, buyout options, residual value guarantees or restrictive covenants.
Most of our leases include one or more options to renew, with renewal terms that can extend the lease term by varying amounts. The exercise of lease renewal options is at our sole discretion. We do not include options to renew in our measurement of lease assets and lease liabilities as they are not considered reasonably assured of exercise.
The lease liability is determined by discounting future lease payments using a discount rate based on our incremental borrowing rate for similar collateralized borrowing. The discount rate is calculated using estimates of capitalization rates and borrowing rates. As of June 30, 2023, the weighted-average discount rate used to determine our operating lease liability was 6.0%.
Lease expense included in general and administrative expenses on the Unaudited Consolidated Statements of Operations was $177,000 and $172,000 for the three months ended June 30, 2023, and 2022, respectively, and $403,000 and $326,000 for the six months ended June 30, 2023, and 2022, respectively.
Future payments under operating lease arrangements accounted for under ASC Topic 842 for each twelve month period following June 30, 2023 are as follows (in thousands):
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Note 12 - Revenue From Contracts With Customers |
6 Months Ended | ||
|---|---|---|---|
Jun. 30, 2023 | |||
| Notes to Financial Statements | |||
| Revenue from Contract with Customer [Text Block] |
ASC 606, Revenue from Contracts with Customers, requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance does not apply to revenue associated with insurance contracts (including title insurance policies), financial instruments and lease contracts; and therefore, is primarily applicable to the following Company revenue categories.
Escrow and other title-related fees – The Company’s title insurance segment recognizes commission revenue and fees related to items such as searches, settlements, commitments, and other ancillary services. Escrow and other title-related fees are recognized as revenue at the time of the related transactions as the earnings process, or performance obligation, is then considered to be complete.
Non-title services –All non-title service fees, such as management fees, are recognized as revenue as performance obligations are completed.
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Note 13 - Business Combinations |
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| Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combination Disclosure [Text Block] |
Effective August 1, 2022, Omega acquired substantially all the assets of OTF. In accordance with ASC Topic 805, the Company has determined that the transaction should be accounted for as a business combination. The assets of OTF at the date of acquisition were as follows (in thousands):
The purchase price paid by Omega for the assets of OTF were as follows (in thousands):
The fair value of assets acquired and liabilities assumed represent the final allocation.
The following table presents the unaudited pro forma financial information as if OTF had been included in the Company’s financial results as of January 1, 2022, through the date of acquisition (in thousands):
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Note 14 - Goodwill and Intangible Assets |
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| Goodwill and Intangible Assets Disclosure [Text Block] |
Goodwill
As of June 30, 2023, the Company recognized $4.5 million in goodwill as the result of the acquisition of 50% of TAV on September 1, 2021, and an additional $2.0 million in goodwill as a result of the business combination with OTF on August 1, 2022. The fair value of goodwill as of the date of acquisition, a Level 3 input, was principally based on values obtained from public and private market comparisons. In accordance with ASC Topic 350, Intangibles – Goodwill and Other, the Company did not record any goodwill impairment losses during the three or six months ended June 30, 2023 and 2022.
Intangible Assets
The following is a summary of intangible assets excluding goodwill recorded as intangible assets on our Unaudited Consolidated Balance Sheets (in thousands):
Intangible assets subject to amortization consisted of the following as of June 30, 2023 (dollars in thousands):
No impairment in the value of amortizing intangible assets was recognized during the three or six months ended June 30, 2023.
Amortization expense of our intangible assets for the three and six month periods ended June 30, 2023, was $17,000 and $38,000, respectively.
Estimated amortization expense of the intangible assets to be recognized by the Company during the remainder of 2023 and over the next five years is as follows (in thousands):
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Note 15 - Uncertainties |
6 Months Ended | ||
|---|---|---|---|
Jun. 30, 2023 | |||
| Notes to Financial Statements | |||
| Uncertainties [Text Block] |
The demand for the Company’s title insurance services is dependent primarily on the volume of residential and commercial real estate transactions. The volume of these transactions historically has been influenced by such factors as mortgage interest rates, inventory, affordability, availability of financing and the overall state of the economy. The Federal Reserve raised the federal funds rate a total of seven times throughout 2022, and four times in 2023 as of the filing date of this Quarterly Report on Form 10-Q, resulting in a current range from 5.25% to 5.50%. It is expected that the Federal Reserve may continue to increase the federal funds rate during 2023 to, among other things, control inflation. Should the Federal Reserve continue to raise rates in the future, this will likely result in further increases in market interest rates. Typically, when interest rates are increasing or when the economy is experiencing a downturn, real estate activity declines. As a result, the title insurance industry tends to experience decreased revenues and earnings, and potentially increased title claims experience.
A shortage in the supply of homes for sale, increasing home prices, rising mortgage interest rates, inflation and disrupted labor markets created some volatility in the residential real estate market in 2021 and 2022, which has continued into 2023. Additionally, geopolitical uncertainties associated with the war in Ukraine have created additional volatility in the global economy beginning in 2022. At this time, the Company is unable to predict the ultimate impact of such disruptions and geopolitical uncertainties.
The Company continues to evaluate the impact of these uncertainties on its operational and financial performance, specifically the impact on HC Realty, and NCTIC and Omega’s operations.
As of June 30, 2023, the Company has not experienced any adverse impacts to the payment of HC Common Stock and HC Series B Stock dividends.
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Note 16 - Subsequent Events |
6 Months Ended | ||
|---|---|---|---|
Jun. 30, 2023 | |||
| Notes to Financial Statements | |||
| Subsequent Events [Text Block] |
As disclosed in a Current Report on Form 8-K filed by FedNat Holding Company (“FedNat”) with the SEC on December 12, 2022, on December 11, 2022, FedNat and certain of its wholly owned subsidiaries, including FedNat Underwriters, Inc. (“FNU”), filed voluntary petitions under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Florida in order to maximize value for all stakeholders. As part of the Chapter 11 process, FedNat will evaluate all strategic alternatives to maximize value for stakeholders, whether that be a reorganization of its business or a sale of its assets.
On January 26, 2023, the United States Bankruptcy Court for the Southern District of Florida, Ft. Lauderdale Division, entered an order (the “Order”) granting a motion from the debtors (including FNU) pursuant to Section 365(a) of the Bankruptcy Code authorizing such debtors to reject that certain Management Advisory Services Agreement dated and effective as of July 1, 2022 (the “Advisory Services Agreement”) between HGMA and FNU. Based on the Order, the Advisory Services Agreement is deemed rejected as of December 12, 2022.
Effective with the rejection of the Advisory Services Agreement, the Company will no longer earn compensation for the remaining duration of the agreement. On February 21, 2023, the Company filed a proof of claim for $609,771 of unsecured claims for compensation earned pre-petition pursuant to the Advisory Services Agreement. The Company also filed a claim for post-petition damages arising from the rejection of the agreement prior to its contractual end date.
On July 27, 2023, FNU and HGMA, amongst other parties, entered into a settlement agreement (the “Settlement Agreement”) addressing both claims identified herein. In the Settlement Agreement, FNU and HGMA agreed that the cumulative amount allowed for both proofs of claim shall be $1,109,771. On August 11, 2023, the United States Bankruptcy Court for the Southern District of Florida, Ft. Lauderdale Division, entered an order (the “Settlement Order”) approving the Settlement Agreement. The total amount recovered for the proofs of claim is subject to successful execution of the proposed Chapter 11 plan by FedNat and its affiliates, including FNU.
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Significant Accounting Policies (Policies) |
6 Months Ended |
|---|---|
Jun. 30, 2023 | |
| Accounting Policies [Abstract] | |
| New Accounting Pronouncements, Policy [Policy Text Block] | Recent Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments in ASU 2016-13 require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendment is effective for public entities for annual reporting periods beginning after December 15, 2022. Early application is permitted for reporting periods beginning after December 15, 2018, although the Company has not opted to do so. The Company has adopted ASU 2016-13 with no related impact to the consolidated financial statements. |
Note 3 - Investment in Affiliate (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity Method Investments [Table Text Block] |
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Note 4 - Investments (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investment [Table Text Block] |
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| Investments Classified by Contractual Maturity Date [Table Text Block] |
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| Fair Value Measurements, Recurring and Nonrecurring [Table Text Block] |
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| Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block] |
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Note 5 - Reserve for Title Claims (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Liability for Unpaid Claims and Claims Adjustment Expense [Table Text Block] |
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Note 6 - Reinsurance (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effects of Reinsurance [Table Text Block] |
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Note 8 - Segment Information (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Schedule of Segment Reporting Information, by Segment [Table Text Block] |
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Note 10 - Stockholders' Equity (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Earnings Per Share, Basic and Diluted [Table Text Block] |
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| Schedule of Stockholders Equity [Table Text Block] |
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Note 11 - Leases (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||
| Lessee, Operating Lease, Liability, to be Paid, Maturity [Table Text Block] |
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Note 13 - Business Combinations (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Business Acquisitions, by Acquisition [Table Text Block] |
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| Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block] |
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| Business Acquisition, Pro Forma Information [Table Text Block] |
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Note 14 - Goodwill and Intangible Assets (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Intangible Assets and Goodwill [Table Text Block] |
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| Finite-Lived Intangible Assets Amortization Expense [Table Text Block] |
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| Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block] |
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Note 2 - Subordinated Notes Receivable (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||||
|---|---|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Sep. 06, 2018 |
Mar. 31, 2018 |
|
| Financing Receivable, after Allowance for Credit Loss, Total | $ 7,400 | |||||
| A&R Note [Member] | ||||||
| Financing Receivable, before Allowance for Credit Loss, Total | $ 3,300 | |||||
| S&L Note [Member] | ||||||
| Financing Receivable, before Allowance for Credit Loss, Total | $ 4,400 | |||||
| Notes Receivable, Interest Rate | 10.00% | |||||
| Proceeds from Interest Received | $ 0 | $ 0 | $ 0 | $ 0 | ||
Note 3 - Investment in Affiliate (Details Textual) - HC Government Realty Trust, Inc [Member] - Series B Cumulative Convertible Preferred Stock [Member] $ / shares in Units, $ in Thousands |
Jun. 30, 2023
USD ($)
$ / shares
shares
|
|---|---|
| Equity Method Investment, Aggregate Cost | $ | $ 10,250 |
| Convertible Preferred Stock of Investee, Shares Issued Upon Conversion (in shares) | shares | 1 |
| Convertible Preferred Stock, Maximum Conversion Price (in dollars per share) | $ / shares | $ 9.10 |
Note 3 - Investment in Affiliate - Equity Method Investments (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Dec. 31, 2022 |
|||||
| Investment in affiliate, balance | $ 10,723 | $ 10,723 | $ 10,850 | ||||||
| Gross unrealized losses | $ 77 | $ (96) | $ (44) | $ (189) | |||||
| HC Government Realty Trust, Inc [Member] | |||||||||
| Ownership percentage | 26.05% | 33.90% | 26.05% | 33.90% | |||||
| Investment in affiliate, balance | $ 10,723 | $ 10,850 | $ 10,723 | $ 10,850 | |||||
| Gross unrealized losses | [1] | $ 77 | $ (96) | $ (44) | $ (189) | ||||
| HC Government Realty Trust, Inc [Member] | Series B Cumulative Convertible Preferred Stock [Member] | |||||||||
| Ownership percentage | [2] | 22.49% | 26.80% | 22.49% | 26.80% | ||||
| Investment in affiliate, balance | [2] | $ 10,250 | $ 10,250 | $ 10,250 | $ 10,250 | ||||
| Gross unrealized losses | [1],[2] | $ 0 | $ 0 | $ 0 | $ 0 | ||||
| HC Government Realty Trust, Inc [Member] | Common Stock of Investee [Member] | |||||||||
| Ownership percentage | 3.56% | 7.10% | 3.56% | 7.10% | |||||
| Investment in affiliate, balance | $ 473 | $ 600 | $ 473 | $ 600 | |||||
| Gross unrealized losses | [1] | $ 77 | $ (96) | $ (44) | $ (189) | ||||
| |||||||||
Note 4 - Investments (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Other than Temporary Impairment Loss, Investments, Portion in Other Comprehensive Loss, Net of Tax, Attributable to Parent, Held-to-Maturity Securities | $ 0 | $ 0 | $ 0 | $ 0 |
Note 4 - Investments - Details Investments by Major Investment Category (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Dec. 31, 2022 |
|
| Gross unrealized losses | $ 77 | $ (96) | $ (44) | $ (189) | |
| Amortized costs | 5,368 | 5,368 | $ 5,564 | ||
| Gross unrealized gains | 0 | 0 | 0 | ||
| Gross unrealized losses | 0 | 0 | 0 | ||
| Total | 5,368 | 5,368 | 5,564 | ||
| US Government Agencies Debt Securities [Member] | |||||
| Amortized costs | 4,118 | 4,118 | 4,314 | ||
| Gross unrealized gains | 0 | 0 | 0 | ||
| Gross unrealized losses | 0 | 0 | 0 | ||
| Total | 4,118 | 4,118 | 4,314 | ||
| Equity Method Investment, Nonconsolidated Investee or Group of Investees [Member] | |||||
| Amortized costs | 1,000 | 1,000 | 1,000 | ||
| Gross unrealized gains | 0 | 0 | 0 | ||
| Gross unrealized losses | 0 | 0 | |||
| Total | 1,000 | 1,000 | 1,000 | ||
| Common Stock [Member] | |||||
| Amortized costs | 250 | 250 | 250 | ||
| Gross unrealized gains | 0 | 0 | 0 | ||
| Gross unrealized losses | 0 | 0 | |||
| Total | $ 250 | $ 250 | $ 250 | ||
Note 4 - Investments - Fair Value Measurement on Recurring Basis (Details) - USD ($) $ in Thousands |
6 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 30, 2023 |
Dec. 31, 2022 |
|
| Total investments | $ 1,250 | |
| Purchases | 0 | $ 1,250 |
| Total investments | 1,250 | 1,250 |
| Total investments | 1,250 | 1,250 |
| Common Stock [Member] | ||
| Total investments | 250 | |
| Purchases | 0 | 250 |
| Total investments | 250 | 250 |
| Total investments | 250 | 250 |
| Equity Method Investment, Nonconsolidated Investee or Group of Investees [Member] | ||
| Total investments | 1,000 | |
| Purchases | 0 | 1,000 |
| Total investments | 1,000 | 1,000 |
| Total investments | $ 1,000 | $ 1,000 |
Note 5 - Reserve for Title Claims (Details Textual) $ in Thousands |
Jun. 30, 2023
USD ($)
|
|---|---|
| Reinsurance Recoverables, Including Reinsurance Premium Paid, Total | $ 0 |
Note 5 - Reserve for Title Claims - Reconciliation of Reserves Account Activity (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Dec. 31, 2022 |
|
| Total provision for claim losses | $ 66 | $ 63 | $ 134 | $ 76 | |
| Title Insurance Product Line [Member] | |||||
| Beginning Reserves | 287 | 231 | |||
| Current year | 25 | 36 | |||
| Prior years | 0 | 0 | |||
| Total provision for claim losses | 25 | 36 | |||
| Current year | (53) | 0 | |||
| Prior years | 0 | 0 | |||
| Total title claims paid | (53) | 0 | |||
| Ending Reserves | 259 | 267 | 259 | 267 | |
| Claims reserves | 259 | $ 267 | 259 | $ 267 | $ 287 |
| Claims reserves, percent | 287.00% | ||||
| Known Title Claims [Member] | |||||
| Ending Reserves | 8 | 8 | |||
| Claims reserves | 8 | 8 | |||
| Claims reserves, percent | 0.00% | ||||
| IBNR Title Claims [Member] | |||||
| Ending Reserves | 251 | 251 | |||
| Claims reserves | 251 | 251 | |||
| Claims reserves, percent | 287.00% | ||||
| Title Claims [Member] | |||||
| Ending Reserves | 259 | 259 | |||
| Claims reserves | 259 | 259 | |||
| Claims reserves, percent | 287.00% | ||||
| Non-title Claims [Member] | |||||
| Ending Reserves | 0 | 0 | |||
| Claims reserves | $ 0 | $ 0 | |||
| Claims reserves, percent | 0.00% | ||||
Note 6 - Reinsurance - Reinsurance Premiums Written and Earned (Details) - National Consumer Title Insurance Company (NCTIC) [Member] - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Direct title premiums | $ 1,081 | $ 751 | $ 1,925 | $ 1,145 |
| Ceded title premiums | (17) | (14) | (31) | (28) |
| Net title premiums | $ 1,064 | $ 737 | $ 1,894 | $ 1,117 |
Note 8 - Segment Information (Details Textual) |
6 Months Ended |
|---|---|
Jun. 30, 2023 | |
| Number of Reportable Segments | 4 |
Note 9 - Income Taxes (Details Textual) - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Mar. 31, 2023 |
|
| Valuation Allowance, Deferred Tax Asset, Increase (Decrease), Amount | $ 168,000 | ||||
| Deferred Tax Assets, Valuation Allowance | $ 7,900,000 | 7,900,000 | |||
| Operating Loss Carryforwards | $ 37,800,000 | 37,800,000 | |||
| Income Taxes Paid, Net | $ 0 | $ 0 | |||
| Deferred Tax Assets, Net of Valuation Allowance | $ 0 | ||||
| Effective Income Tax Rate Reconciliation, Percent | 16.30% | 0.00% | 3.00% | 0.00% | |
Note 10 - Stockholders' Equity (Details Textual) - USD ($) |
3 Months Ended | 6 Months Ended | |
|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2023 |
Aug. 05, 2022 |
|
| Treasury Stock, Shares, Acquired (in shares) | 4,265 | 4,435 | |
| Shares Acquired, Average Cost Per Share (in dollars per share) | $ 7.14 | $ 7.16 | |
| Treasury Stock, Value, Acquired, Cost Method | $ 30,451 | $ 31,762 | |
| Weighted Average [Member] | |||
| Shares Acquired, Average Cost Per Share (in dollars per share) | $ 7.14 | $ 7.14 | |
| Common Stock [Member] | |||
| Stock Repurchase Program, Authorized Amount | $ 1,500,000 |
Note 10 - Stockholders' Equity - Basic and Diluted Earnings Per Share Calculation (Details) - shares shares in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Weighted average shares outstanding for basic calculation (in shares) | 2,868 | 2,847 | 2,868 | 2,843 |
| Add: Effect of dilutive stock awards (in shares) | 0 | 0 | 0 | 0 |
| Weighted average shares outstanding, adjusted for diluted calculation (in shares) | 2,868 | 2,847 | 2,868 | 2,843 |
Note 10 - Stockholders' Equity - Reconciliation of Activity in Stockholders' Equity Accounts (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||||
|---|---|---|---|---|---|---|
Jun. 30, 2023 |
Mar. 31, 2023 |
Jun. 30, 2022 |
Mar. 31, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Balance | $ 33,426,000 | $ 33,426,000 | ||||
| Shares repurchased | $ (30,451) | (31,762) | ||||
| Net income (loss) | 72,000 | $ (363,000) | (766,000) | $ (940,000) | ||
| Balance | 32,627,000 | 32,627,000 | ||||
| Common Stock [Member] | ||||||
| Balance | 54,000 | 54,000 | 54,000 | $ 54,000 | 54,000 | 54,000 |
| Shares repurchased | 0 | 0 | ||||
| Net income (loss) | 0 | 0 | 0 | 0 | ||
| Stock-based compensation expense | 0 | 0 | ||||
| Balance | 54,000 | 54,000 | 54,000 | 54,000 | 54,000 | 54,000 |
| Additional Paid-in Capital [Member] | ||||||
| Balance | 30,491,000 | 30,491,000 | 30,471,000 | 30,450,000 | 30,491,000 | 30,450,000 |
| Shares repurchased | 0 | |||||
| Net income (loss) | 0 | 0 | 0 | 0 | ||
| Stock-based compensation expense | 20,000 | 21,000 | ||||
| Balance | 30,491,000 | 30,491,000 | 30,491,000 | 30,471,000 | 30,491,000 | 30,491,000 |
| Retained Earnings [Member] | ||||||
| Balance | 1,977,000 | 2,777,000 | (1,519,000) | (942,000) | 2,777,000 | (942,000) |
| Shares repurchased | (32,000) | (1,000) | ||||
| Net income (loss) | 80,000 | (799,000) | (363,000) | (577,000) | ||
| Stock-based compensation expense | 0 | 0 | ||||
| Balance | 2,025,000 | 1,977,000 | (1,882,000) | (1,519,000) | 2,025,000 | (1,882,000) |
| Noncontrolling Interest [Member] | ||||||
| Balance | 65,000 | 104,000 | 0 | 0 | 104,000 | 0 |
| Shares repurchased | 0 | 0 | ||||
| Net income (loss) | (8,000) | (39,000) | 0 | 0 | ||
| Stock-based compensation expense | 0 | 0 | ||||
| Balance | $ 57,000 | $ 65,000 | $ 0 | $ 0 | $ 57,000 | $ 0 |
Note 11 - Leases (Details Textual) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Operating Lease, Weighted Average Remaining Lease Term (Year) | 2 years 7 months 24 days | 2 years 7 months 24 days | ||
| Operating Lease, Weighted Average Discount Rate, Percent | 6.00% | 6.00% | ||
| Operating Lease, Expense | $ 177,000 | $ 172,000 | $ 403,000 | $ 326,000 |
| Minimum [Member] | ||||
| Lessee, Operating Lease, Term of Contract (Year) | 1 year | 1 year | ||
| Maximum [Member] | ||||
| Lessee, Operating Lease, Term of Contract (Year) | 3 years | 3 years | ||
Note 11 - Leases - Future Payments Under Operating Lease Arrangements (Details) $ in Thousands |
Jun. 30, 2023
USD ($)
|
|---|---|
| 2024 | $ 346 |
| 2025 | 229 |
| 2026 | 100 |
| 2027 | 52 |
| 2028 | 21 |
| Total lease payments, undiscounted | 748 |
| Less: present value discount | (55) |
| Lease liabilities, at present value | $ 693 |
Note 13 - Business Combinations - Purchase Price Allocation (Details) - Omega National Title Agency (Omega) [Member] $ in Thousands |
Aug. 01, 2022
USD ($)
|
|---|---|
| Title files in progress | $ 60 |
| Property, plant, and equipment | 53 |
| Total assets acquired | 485 |
| Noncompete Agreements [Member] | |
| Noncompetition agreement | $ 372 |
Note 13 - Business Combinations - Assets Acquired and Liabilities Assumed (Details) - USD ($) $ in Thousands |
Aug. 01, 2022 |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|---|
| Goodwill, Ending Balance | $ 6,492 | $ 6,492 | |
| Omega Title Florida, LLC [Member] | |||
| Cash paid | $ 2,300 | ||
| Noncontrolling interest in Omega | 185 | ||
| Total consideration paid | 2,485 | ||
| Property, plant, and equipment | 53 | ||
| Total assets acquired | 485 | ||
| Goodwill, Ending Balance | 2,000 | ||
| Omega Title Florida, LLC [Member] | Title Files In Progress [Member] | |||
| Title files in progress | 60 | ||
| Omega Title Florida, LLC [Member] | Noncompete Agreements [Member] | |||
| Noncompetition agreement | $ 372 |
Note 13 - Business Combinations - Pro Forma Information (Details) - Omega Title Florida, LLC [Member] - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended |
|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2022 |
|
| Revenues | $ 2,965 | $ 5,488 |
| Net income | $ (350) | $ (820) |
Note 14 - Goodwill and Intangible Assets (Details Textual) - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Aug. 01, 2022 |
Jun. 30, 2023 |
Jun. 30, 2023 |
Dec. 31, 2022 |
Sep. 01, 2021 |
|
| Goodwill, Ending Balance | $ 6,492,000 | $ 6,492,000 | $ 6,492,000 | ||
| Amortization of Intangible Assets | 17,000 | 38,000 | |||
| Title Agency Ventures, LLC (TAV) [Member] | |||||
| Goodwill, Ending Balance | $ 4,500,000 | $ 4,500,000 | |||
| Business Acquisition, Percentage of Voting Interests Acquired | 50.00% | ||||
| Omega Title Florida, LLC [Member] | |||||
| Goodwill, Ending Balance | $ 2,000,000 | ||||
| Goodwill, Acquired During Period | $ 2,000,000.0 |
Note 14 - Goodwill and Intangible Assets - Summary of Intangible Assets (Details) - USD ($) $ in Thousands |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Intangible assets subject to amortization | $ 304 | |
| Total | 304 | $ 342 |
| Noncompete Agreements [Member] | ||
| Intangible assets subject to amortization | $ 304 | $ 342 |
Note 14 - Goodwill and Intangible Assets - Intangible Assets Subject To Amortization (Details) - USD ($) $ in Thousands |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Gross carrying amount | $ 372 | |
| Accumulated amortization | (68) | |
| Net carrying amount | $ 304 | |
| Noncompete Agreements [Member] | ||
| Weighted-average remaining amortization period (Year) | 4 years 3 months 18 days | |
| Gross carrying amount | $ 372 | |
| Accumulated amortization | (68) | |
| Net carrying amount | $ 304 | $ 342 |
Note 14 - Goodwill and Intangible Assets - Estimated Amortization Expense (Details) $ in Thousands |
Jun. 30, 2023
USD ($)
|
|---|---|
| Remaining in 2023 | $ 37 |
| 2024 | 74 |
| 2025 | 74 |
| 2026 | 74 |
| 2027 | 45 |
| Total | $ 304 |
Note 16 - Subsequent Events (Details Textual) - USD ($) |
Jul. 27, 2023 |
Feb. 21, 2023 |
|---|---|---|
| Unsecured Claim for Compensation Earned Pre-petition | $ 609,771 | |
| Subsequent Event [Member] | ||
| Settlement Agreement, Cumulative Amount for Claims | $ 1,109,771 |
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